As eCommerce and delivery companies fight an increasingly tough battle to streamline costs and compete for customers, a number of firms are moving to take control over logistics and distribution, as the cost savings and efficiencies can help accelerate growth and lower the expense of making final delivery to the customer.
Domino’s, the world’s largest pizza delivery chain, said the company needed to accelerate investments in supply chain centers, as domestic volume has risen 50 percent over the past five years. It has been 10 years since the last new facility was built.
The pizza chain is targeting a mid-September opening date for its new, 182,000-square-foot supply chain center in Edison, New Jersey, according to spokesman Tim McIntyre. The facility, along with existing centers in Maryland and Connecticut, will serve northeastern U.S. stores. The company has a total of 16 centers in the U.S. and Canada.
For competitive reasons, the company has not yet revealed where two additional planned facilities will be located, but will announce those when leases are signed, McIntyre said. Domino’s had originally planned the two additional centers, which will not be as large as the Edison facility, within five years, but shortened that window due to the rapid increase in business.
The company reported about $441 million in supply chain revenues in the second quarter, compared with $390 million in the year-ago quarter. According to regulatory filings, Domino’s said that supply chain revenue primarily comes from sales of food, equipment and supplies to its franchise stores in the U.S. and Canada. The company had 5,296 franchise stores in the U.S. during the quarter, and 396 company-owned stores. About $41 million of the $441 million supply chain revenue comes from sales to international stores.
Capacity Surge
Company CEO Richard Allison later added that as capacity has increased in recent years, the company saw the existing supply chain centers running into some potential “inefficiencies and dis-economies of scale” when capacities were pushed beyond a certain point.
The additional expenditures will raise gross capital spending to between $115 million and $120 million, up from the previously forecast $90 million to $100 million.
Chief Financial Officer Jeffrey Lawrence told analysts that labor costs at its corporate locations ticked up a bit by 0.5 points to 30 percent of sales, mainly due to labor rates. Those rates in part were due to minimum wage increases, as well as certain stores having to pay a little extra to hire and retain employees due to the competition stemming from the stronger economy.
At the end of the first quarter, Domino’s had begun to test automated phone ordering in about 20 of its corporate stores.
Efficient Warehouses
On the eCommerce front, Wayfair, the online home furnishings retailer, has taken steps in recent years to better control its logistics network, from manufacturers’ inbound supply links to the middle mile network, as well as home delivery.
CEO Niraj Shah, during the company’s second-quarter conference call, noted that Wayfair operates 25 of its own last-mile delivery facilities, with the recent additions of Portland and Nashville, meaning the firm covers about 63 percent of its U.S. network. Wayfair reported a surge in orders over the past year, with 6.5 million delivered during the second quarter, a 51 percent increase from the year-ago period.
The company is seeing customer ratings surge since taking control over 90 percent of its large parcel orders, processing them through its network of consolidation centers, cross docks and line hauls. Shah said the net promoter scores for the company reached an all-time high during the first half of 2018, which he called a great endorsement of what they are doing.
Wayfair is also piloting a program through its CastleGate warehouse network, where it is shipping consolidated containers of goods from China, Malaysia and Vietnam from multiple suppliers.
“When sending product to CastleGate from Asia, the economics of transportation make it cost-prohibitive for suppliers to send product in containers that are only partially filled,” Shah said during the second quarter conference call. By going directly to the source, the company can move a more diverse assortment of items to North America or Europe at a lower cost.
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