Manufacturing Then and Now. Made in U.S.A.

“If you control your factories, you control your quality. If you control your distribution, you control your image.”

–Bernard Arnault, Chairman and CEO of LVMH Moët Hennessy – Louis Vuitton

Offshoring-vs.-Reshoring-the-Business-Perspective

Poor factory conditions and illegal subcontractors are ongoing issues that have not been properly or effectively addressed.  Since the 1,127 deaths from the collapse of the Rana Plaza garment factory in Bangladesh in April (the worst in Bangladesh history), few changes have been enforced at the more than 4,500 garment factories in Bangladesh.  Just recently, a factory fire in Dhaka killed 9 workers.  Countries with heavy manufacturing activity struggle to enforce factory standards and are careful to make policy decisions that could negatively impact profitability and workforce headcount.  The pressure for these countries to maintain low costs, which involve restricting workers’ rights, and to sustain their export-led growth is the direct result of offshore manufacturing.

The golden years for offshore manufacturing are retiring as costs abroad are rising due to more expensive labor and energy costs.  Manufacturing cost differences between China and the U.S. have dropped from an 18% discount in 2003 to only around 7% this year.  A number of companies have shut down their factories in China as a result of increasing labor costs and moved their operations to Southeast Asia, India and Mexico (e.g. Addidas, GE, Nike, Lenovo), where the cost gap has remained fairly unchanged since 10 years ago.  However, companies are now finding more challenges than cost in countries like Cambodia and Bangladesh, specifically illegal subcontracting, dangerous factory conditions, protests and quality control issues.

Illegal subcontracting is the result of orders that are too large to be filled by a single contracted factory.  Portions of orders are subcontracted to smaller factories to help meet tight order deadlines.  This has not only resulted in quality decline and product inconsistency, but also poor labor conditions because of the lack of monitoring and oversight of these factories.  Corruption from this practice has even extended to prison facilities, where inmates are found producing goods to fulfill a small order to be sent back to the main factory.

Recent fires and deaths at illegal factories have increased concerns from brands, factory owners, governments and human rights organizations.  Increasing foreign involvement in offshore manufacturing has resulted in a push for a wave of initiatives to regulate and transform the current factory conditions and processes at these manufacturing sites.  This month, the International Labour Organization has announced the return of the Better Factories Cambodia program (2001-2005), in which factory conditions will be publicly reported.  Bangladesh has also introduced an inspection program this year in response to the numerous factory deaths.

Companies also recognize the threat to their businesses if they do not respond to illegal manufacturing activities and poor labor conditions.  Recall the global boycott against Nike in the 1990’s for its sweatshops in Asia.  Today, protests are still ongoing in Bangladesh as workers demand for better pay and working conditions and represent those who died in the Rana Plaza collapse.  Companies will need to invest in factory supervisors to facilitate manufacturing abroad and become more involved in the inspection process to ensure worker safety and rights as well as prevent future violent protests that would paralyze production and delay order requests.

As factories are forced to improve their factory conditions, improve workers’ rights, increase wages and invest in skilled inspectors, manufacturing costs in those countries will rise.  The increasing burden and costs of manufacturing abroad have given rise to the opportunity to reshore U.S. manufacturing.

New technologies, materials, systems and processes are transforming the manufacturing environment in the U.S. to become one that is more automated and able to support mass customization.  This is the New Manufacturing Economy.  Technology and new platforms are entering at every stage of the production process to improve the efficiency and accuracy of development from design to finish and to ensure high quality products are delivered to the buyers.  And already, many of the advanced manufacturing solutions, such as 3D printing (To learn more about 3D printing, see my previous post: 3D Printing is the New Black) and robotic technologies, are becoming cheaper and more effective, providing more incentive for manufacturers to produce locally.  Having a local manufacturing process also allows companies to react quickly to consumer demands and market trends, and increase speed to market.  And with a recent revival of an interest in craftsmanship, more individuals are interested in becoming makers of their own ideas and are looking for local manufacturers to produce smaller quantities of their own designs (outsourcing manufacturing requires large orders and does not support individuals interested in sampling their various designs).

New technologies are simplifying the production process and making manufacturing more transparent.  The adoption of advanced manufacturing solutions will not only allow companies to achieve lean manufacturing and improved product quality, but also allow them to adapt their factories to the safety and needs of their workers’.  Moreover, issues can be more easily addressed if local, compared to having to hire independent, oversea factory advisors and deal with local governments and foreign policies.

Below are a few of my favorite companies that are disrupting manufacturing today:

Maker’s Row

Maker’s Row is an online marketplace that connects product-based businesses or designers with American manufacturers.  The platform separates the manufacturing process into 6 stages for the user to choose from: ideation, drafting, materials, sample-making, tooling and production.  After choosing a stage of the process, a collection of manufacturers are recommended to the user.  Included with each manufacturer listed are its contact information, capabilities, hours and location, target customers, and reviews.  Maker’s Row has both standardized the selection method for a manufacturer and customized the manufacturing process for its users.

See this video to learn more about Maker’s Row: bit.ly/1azQlnC

maker's rowmaker's row 2

Shapeways

Shapeways allows individuals to make, buy and sell their own products, creating a platform for online boutiques specialized in 3D printed products.  Shapeways is enabling individuals to become designers and merchants of their own ideas.

See this video to learn more about Shapeways: http://bit.ly/QqPxb

Shapeways

3D Hubs

3D Hubs is a collaborative production platform that enables 3D makers to connect with local 3D printer owners and print customized products locally.  The company allows owners to earn money with their 3D printer by joining the Hubs listing in their city.  Each Hub determines its own printing price and 3D Hubs facilitates the print order process and collects a 15% commission on the price for each customer quote. Talk about speed to consumer!  The company is building a global network and growing local communities around 3D printing.  The network currently has over 500 3D printers spread across 200 cities.

Interested to see a partnership between 3D Hubs and Shapeways…

See this video to learn more about 3D Hubs: http://bit.ly/1cqMV7Z

3d hubs

Sight Machine

Sight Machine uses networked cameras, vision algorithms and cloud computing to control quality, manage spot inspections and perform process analyses.  The software allows a company to determine why parts are failing, identify trends and variations, and track relationships among scores of parameters. The company’s products and services work in the plant and across the supply chain to improve production, quality control and efficiency.  Sight Machine is automating the inspection process and helping streamline assessment and operational management tasks.

See this video to learn more about Sight Machine: http://sightmachine.com/product

JOOR

Joor is an online wholesale fashion marketplace that provides a digital platform to help streamline communication, discovery, and transactions between designers and retailers.  Brands can feature their collections, search for potential boutiques and manage all of their orders online.  Boutiques are able to access real-time information on a brand’s sales team and inventory availability.

Earlier this year, the company had more than 40,000 retailers and 600 brands using the site, including Diane von Furstenberg, Rag & Bone and Zappos, compared to 250 brands and about 7,500 boutiques back in 2011.

See this video to learn more about JOOR: http://vimeo.com/58486006

joor2 joor

 

Sources: http://online.wsj.com/article/SB10001424052702303818704579089810120675896.htmlhttp://pulitzercenter.org/reporting/asia-bangladesh-rana-plaza-tragedy-building-collapse-death-garment-factory-faulty-inspections-dangerous-conditionshttp://news.thomasnet.com/IMT/2012/07/10/offshoring-vs-reshoring-the-business-perspective/http://www.nytimes.com/2012/12/18/world/asia/bangladesh-factory-fire-caused-by-gross-negligence.html?ref=asiahttp://techcrunch.com/2013/07/25/online-fashion-marketplace-joor-raises-15m-in-series-b-funding/http://yourstory.in/2011/11/joor-facebook-of-fashion-ecommerce/,

Shop a Swag – Online Luxury Consignment

Online luxury consignment is an interesting business.  Sellers are able to make a profit from their used or depreciating assets and buyers are able to purchase desired items at a discount to the original retail price (And they can call it vintage…as Mugatu from Zoolander would say, “Vintage is so hot right now”).  The idea of buying someone else’s previously owned and worn shoes may not appear appealing and can even be considered insulting to high-fashion as it is the exact opposite of haute couture, or custom-made and fitted, high fashion women’s clothes.  Despite this notion, the demand for secondhand goods is growing and a number of online luxury resellers have emerged to provide a marketplace for pre-owned merchandise.  Studies have attributed the increasing demand and growth to the economic recession, in which individuals turned to secondhand luxury goods instead of full-priced, new luxury goods.  According to First Research, the pre-owned merchandise store industry in the U.S. includes about 18,000 stores with combined annual revenue of approximately $13 billion, and of that about 25% of sales are from clothing, 13% from antiques and 10% from furniture and collectibles.  According to America’s Research Group, 12% – 15% of Americans will shop at a consignment/resale shop during a given year.  While there are few statistics available for online luxury resellers, one can infer that they are achieving impressive user acquisition and top-line growth.

Although luxury consignment is an attractive concept, there are many challenges facing this business.  First, given the business model is fee based, in which a small fee is received for every transaction, large scale is needed to be financially sustainable.  The low barriers of entry in this market have resulted in a highly competitive space that can make it difficult to achieve the scale needed to be profitable.   Additionally, online luxury resellers will be challenged to differentiate themselves from the many other consignment sites.  And how are they able to differentiate themselves so that they aren’t steamrolled by Amazon or ebay?  ebay also offers a lower transaction fee than many of these newcomers.  Ebay’s transaction fee is between 8% – 12% compared to the 20% fees charged by most of the online luxury resellers.  Many also boast their ability to provide a quick, easy and liability-free shopping experience as their point of differentiation, but that is already the norm and has been adopted by the majority of e-commerce sites as well.  The other major challenge is online luxury resellers’ sensitivity to concerns around quality and authenticity of the products as well as vendor trust.  Any reason to doubt the credibility of the products or sellers would result in a loss of members.  As a platform or peer-to-peer marketplace, it is impossible to verify the authenticity of a product without incurring additional costs to facilitate the products for sale and requiring a fashion expert to confirm that a piece is an original and not from a Chinese street market (e.g. Xiushui Silk Street…but definitely visit here in Beijing because it’s very popular among tourists!).

There are a few things setting apart some of the existing online consignment sites from the others.  The most obvious is visual design.  An effective visual design is simple and helps the user easily navigate the site.  The ease of browsing, filtering options and presentation of products on a page are essential to the user’s experience (Check out Vestiaire’s).

vestiairevestiaire2

And if you’ve read my previous posts, you already know what I’m about to say next…Yes, the need for sharing features that provide an engaging, real-time social experience for the users  (I also discuss this in Like Prada, Repin Prada then Shop Prada).  For example, Threadflip allows its users to share its products on Facebook, Twitter and Pinterest as well as comment or “love” the product.  Users are also able to follow sellers.  These features transform the marketplace into a community.

threadflip

Poshmark’s Posh Parties take an innovative approach to providing its users an engaging, real-time social experience while shopping.  Posh Parties are virtual buying and selling parties.  To give you a better idea, it is similar to Gilt in that it features products under a specific category or brand for users to shop.  Digital curation makes it easy for users to shop online because it provides for an easy way to navigate through items that the individual likes or doesn’t like.  The “parties” are organized by Poshmark users or hosts and are posted in real-time.

These Posh parties create a sense of curiosity and urgency with its users, bringing them back to check on upcoming parties (every party is different and are created every day) and possible brands or categories that they like.  Posh parties also increase user activity for sellers as sellers look to collaborate with other sellers to sell more of their items and create new categories to attract buyers.  Moreover, parties increase visibility of products compared to a single product that will most likely be lost in the feed.

photo 1 photo 2

Finally, there must be an app for the site.  Individuals need to be able to access the site from their phones and tablets so that they are able to check for their favorite products and brands and compare prices at any time.  So much of the buying on these sites are driven by impulsive behavior (I can confirm this); therefore, it only makes sense to find a trigger for that behavior…

Check out a few of the leaders in this market who have successfully met the challenges discussed above.

Poshmark

poshmark

Poshmark received $12M Series B last year led by new investor Menlo Ventures, bringing the total amount invested in Poshmark to $15.5 million since 2011.  Poshmark has been focused on expanding its mobile fashion marketplace beyond iOS.  On iOS devices alone in the United States, it has ~250,000 women with active personal “boutiques” to sell items of their own closets and more than 1 million items have been sold on Poshmark since the start of this year.

Vaunte

vaunte1vaunte2

Vaunte is a luxury consignment platform with a fashion editorial element.  The site features celebrities, designers and socialities and allows its users to shop various products from those individuals’ closets.  Vaunte takes a 30% commission for photographing and shipping seller’s items.

Vaunte has also expanded to provide new items and is looking to grow its consignment platform to include “non-starlet” users.

I also talked a little more about Vaunte in my previous post Like Prada, Repin Prada then Shop Prada.

Vestiaire

vestiaire

Vestiaire Collective was launched in 2009 as a place for consumers to buy and sell pre-owned, authentic luxury goods.  Currently, the site has a network of approximately 1.5 million members worldwide and has a number of product categories such as women, men, kids and life and living.

Condé Nast announced at the beginning of this month a $20 million investment in Vestiaire Collective.

Threadflip

threadflip

Threadflip boasts that its sellers make between $400 to $2,200 a month.  Threadflip takes a 20% cut on all transactions and 40% on its White Glove transactions.  The White Glove service involves Threadflip helping assess, professionally photography and post the seller’s product on the site.  The service also handles shipping and customer service.  The average White Glove seller makes approximately $500 per shipment.

Threadflip has raised $8.1 million in seed funding from First Round Capital, Baseline Ventures, with participation from Dave Morin, Forerunner Ventures, Greylock Discovery Fund, and Andreessen Horowitz Seed Fund.

The RealReal

therealreal

As of the first quarter of 2013, The RealReal was growing by 1.5 million visitors a month and had about 750,000 members.  The company also shipped more than 20,000 luxury items to customers and was growing by 20 percent month over month.  The average consigner at the RealReal, meanwhile, is raking in about $6,000 a year.

In April, the online shop raised $14 million in a Series B round of funding.

 

Most importantly, check out Tom Haverford’s (from tv show Parks and Recreation) Rent-A-Swag!  If you haven’t seen the episode (Season 5, Episode 6) or the show already and are dying for a good laugh, check it out.  Here’s an awesome clip from the episode: http://www.youtube.com/watch?v=DBcgtEW3KCk

 

Share with me your thoughts on online luxury consignment @tiffanydstone or comment below!

 

Sources: http://techcrunch.com/2011/06/15/google-ventures-backed-copious-launches-a-social-marketplace-for-the-facebook-era/http://techcrunch.com/2012/12/04/poshmark-nabs-12m-series-b-led-by-menlo-ventures-to-expand-its-mobile-fashion-marketplace-beyond-ios/http://venturebeat.com/2013/08/01/threadflip-gets-more-social-to-sell-the-billions-of-dollars-hiding-in-womens-closets/http://techcrunch.com/2013/09/22/poshmark-growth-downloads-sales/http://www.betakit.com/27perry-launches-consignment-marketplace-to-bring-local-merchandise-online/http://www.bizjournals.com/sanfrancisco/blog/2013/08/threadflip-online-consigners-chase.html?page=allhttp://www.luxurydaily.com/conde-nast-invests-20m-in-online-luxury-resale-site/, First Research, NART

Oh the Places Food Trucks Will Go!

I’ve always been curious about the food truck business.  Every day, a variety of food trucks line up along Park Avenue outside my office during lunch.  Long lines form around the trucks with people eagerly waiting to buy a lobster roll, dessert pizza, chicken with rice or donut ice cream.

In 2012, there were approximately 3,000 food trucks and carts in New York alone, and food truck revenue was estimated to be approximately $650 million.  The average customer spends approximately $10 on lunch and $15 on dinner at a food truck.  A previous study showed that the largest consumers for mobile vendors are individuals between the ages 25 to 34, spending an average of $44 a month.  In the past 5 years, the food truck industry has experienced tremendous growth with revenue jumping 6.1 percent in 2008 to $1.1 billion and 9.5 percent in 2009 to $1.2 billion.

food truck lines

Breaking In

Although the food truck business is a simple concept and has a lower overhead than restaurants, there exists many challenges in entering the business and becoming a sustainable market leader.  The initial costs to start a food truck include the truck, a permit to operate, parking, supplies and insurance.  The average cost of a food truck ranges anywhere from $30,000 for a used food truck (e.g. Vending Trucks offers food trucks with a very basic mobile kitchen in an older step van for $40,000) to $300,000 or more (newly customized gourmet food truck).  A retrofitted truck would cost around $60,000+.

Even more important than the truck is the permit required to operate a food truck in a state.  In New York, food truck owners are required to have a Mobile Food Vendor Personal License and a Mobile Food Vending Unit Permit.  The permit in New York expires in 2 years and the fee is $200 for a processing food unit and $75 for a non-processing food unit–the sale or distribution of only pre-packaged foods or foods that do not require cooking or any other treatment that exposes the food to contamination.  In comparison, a permit costs $500 in Boston, $1000 in Chicago for a processing food unit and $700 for a non-processing food unit, $340 in Philadelphia, and about $730 in San Francisco.  The limited number of permits available in each city (e.g. approximately only 3,000 in New York) has resulted in illegal rental permits and a black market where permits can be sold up to $20,000.

Usage of a commissary is another large upfront cost and is also a monthly cost.  The New York City Department of Health mandates that all mobile food vendors must visit a state licensed commissary each day, where food is store and prepared and cleaning services are performed.  These commissaries also sell and rent carts and sell vendors supplies such as food and propane.  When a food truck is not operating or selling to its customers, it is required to park at the commissaries; food trucks are not allowed in metered spots or on private property.  The average cost for commissaries ranges from $500 to $1200 per month.  In addition to the food truck, permit and commissary costs, business liability insurance and vehicle insurance are also necessary startup costs.  Insurance costs include auto liability ($2,000-$3,000 per year or $2,500 estimate per year), general liability ($3,500 per year), and workers’ compensation insurance ($7,000  per year for 3 employees).

Other variable costs that need to be incurred to operate a food truck include gas, vehicle modifications, food, marketing materials, and staff.

money truck

Beyond costs, also think about: Location, Location, Location…

The demographics of the customers and location of competing businesses are both significant sales-affecting factors.  Lunchtime in a business district is an ideal location for a food truck, but permits may be difficult to obtain in those areas.  The idea is to position your truck in a walking distance location or where foot traffic is heavy.  Knowing who your competitors are in the area and what they’re selling is necessary to avoid selling similar menu items and differentiating your truck.  Avoid selling pizza next to another pizza food truck…I find the trucks around my building have been very strategic with their location as there is a Bank of America building with numerous ATM machines across the street and we are located in the midtown financial district.

View of food trucks along Park Avenue near my building:

food trucks on park avenue

The number of food trucks already in New York makes it difficult for new entrants to succeed, as many of the most popular corners have already been occupied.  Additionally, with increased city regulations, it becomes more difficult to sell in various locations.  For example, New York City Council recently proposed a bill that would create up to 450 specially designated “food truck zones”, and require food to be legally served only in the parking spots.  This would restrict food trucks to specific locations, stripping them of their mobility and advantage over restaurants as well as limit the number of food trucks allowed in the city.

The Challenges…

Contrary to popular belief, there are high barriers to entry into the business these days when considering startup costs, permit availability, and limited commissaries and unoccupied desirable locations.  The increasing startup costs require expensive business loans that are not easily attainable as default risk is high in the food truck business and there is a lack of visibility into the financial condition of the food trucks.  In general, small businesses are more vulnerable to business cycles and therefore viewed riskier.  As a result, it is more expensive to lend to these smaller businesses.

I believe the food truck market has also become very dense and this has made it difficult for new entrants to achieve the margins promised by the business.  For example, in Boston, the number of food trucks has increased from 15 in 2011 to 59 today.  Restaurants have also begun introducing their own food trucks to get their own slice of the cake (e.g. Taco Bell).  And as previously mentioned, increased regulation in response to the rapid growth in the number of food trucks in each city further hinders food truck entrepreneurship.

We can expect to see more food truck lots or areas designated for a few trucks during select hours to sell food and drinks (e.g. DispatchNY) as well as increased food truck presence at food markets such as Williamsburg’s Smorgasbord and farmer’s markets (I love the coffee cart that comes to my farmer’s market every weekend).  Corporate campuses like Facebook’s and LinkedIn’s have also welcomed food trucks and have become popular locations for food trucks.

linkedin food truck campus

Can’t Stop, Won’t Stop Wheeling Forward

This is not to say that current food truck players will also be negatively impacted by these factors, rather food truck market leaders can benefit from their first mover advantage and security in the market.  Existing food trucks will have less competition with their menus, location and brand as well as have a higher customer retention as a result of fewer new entrants.  They will also have easier access to business loans to increase the number of their trucks or expand into another state as they grow their sales and market share in the market and support their potential with historical financial performance.

My favorite food truck and where you can find me on a Friday @ 47th and Park Ave!

Luke's Lobster Food Truck

 

Also check out Shark Tank episode on Food Trucks…Pretty hilarious!

 

Share with me your thoughts on Food Trucks/Mobile Vending @tiffanydstone or comment below!

 

Sources: http://www.sbdcnet.org/small-business-research-reports/sbdcnet-connections-issue-55-mobile-food-vendors, http://www.entrepreneur.com/article/220060, http://www.nytimes.com/2013/05/12/magazine/the-food-truck-business-stinks.html?pagewanted=all&_r=0, http://www.forbes.com/sites/investopedia/2012/09/27/the-cost-of-starting-a-food-truck/, http://www.grubstreet.com/2009/08/users_guide_how_to_start_your.html, http://www.grubstreet.com/2012/07/food-trucks-turn-to-stores-for-convenience-reliability.html, http://www.csmonitor.com/Business/2013/0824/Restaurants-reinvent-the-food-truck, http://mobile-cuisine.com/trends/food-truck-owners-need-to-keep-an-eye-on-dining-trends/?wt=10, http://mobile-cuisine.com/business/preventing-employee-theft-in-your-food-truck/?wt=10, http://hereandnow.wbur.org/2013/08/29/food-trucks-slowing, http://800buycart.com/Index.html, http://www.cloverfoodlab.com/wp-content/uploads/2011/06/Food-Truck-101.pdf, http://www.amazon.com/Start-Your-Food-Truck-Business/dp/1599184141?SubscriptionId=AKIAJZ6KOIE3KFD4MRWA&tag=rotues-20&linkCode=xm2&camp=2025&creative=165953&creativeASIN=1599184141, http://upended.net/post/25574021175/foodtruckstartupcosts, http://mobile-cuisine.com/business/breaking-into-the-food-truck-industry-%E2%80%93-part-1/, http://network.intuit.com/2012/12/05/food-trucks-motor-into-the-mainstream/#sthash.PVSSwoTW.dpuf, NY Health Department

The Fastpass of Dining – Waitlisting Management Apps

Your Saturday night dinner could be waiting for you instead of you waiting on it.

experience

In the past few years, a number of mobile waitlisting management services have emerged to improve the waiting time experience, including NoWait, buzztable, quickcue, NoshList, Table’s Ready and QLess.  These applications are focused on helping restaurants increase revenue in 3 ways:

  1. Seat more guests
  2. Collect more customer data
  3. Improve customer experience

The idea behind these apps is simple: you enter a restaurant and submit your name and number to the host, you receive text message updates on the status of your waiting time (some apps also allow you to view the number of parties ahead of you on your smartphones) and you are notified when your table is ready.

“Customers get a more enjoyable experience with real-time information so they can wait where they want and still go to the restaurants they want to.” –Robb Myer, President & Chief Product Officer at NoWait

buzz

The apps not only provide wait time notifications and management, but also allow restaurants to engage with customers via e-mail or text message and utilize customer data to track performance and customer retention.  For example, BuzzTable automatically creates a guest profile for each customer upon submitting his or her name and number, helping the restaurant track the individual’s dining history, birthday and customer preferences.  The marketing features allow restaurants to share promotions, coupons and create custom retention rewards.  Some other features include allowing customers to invite friends to the guest list or create a party and share their restaurant check-in on Facebook.

howitworks_step5

loyalty-tab

One study found that letting customers use their cell phones to be notified instead of coaster pagers resulted in 9.1 percent fewer turn-aways.  Coaster pagers are also expensive and start at $50-$100 per pager (LRS sells a 15-pager kit for $928).  Additionally, the cost for replacement or repairment of a pager can range from $70-$100 per pager.  It is not uncommon for pagers to be lost or stolen as reported by many restaurants.  Therefore, not only are fixed startup costs reduced for a waitlist management system, but also the maintenance costs required to replace or repair pagers.

Comparison of Startup Costs:

Restaurant Pagers: $2000 – $6000 (according to Foodservice.com)

Waitlist app: $0 – $1200 (range based on required iPads or computers)

*QLess offers to even purchase the old pager system from the restaurant and apply its current value to its QLess bills.

**The apps make money by charging restaurants a platform fee to manage their guests with costs ranging from ~$49-$200 per month depending on the selected plan.  For example, NoWait offers three plans for restaurants based on the number of parties a month: free for 200 parties, $114 a month for 1,200 parties and $199 a month for 2,500 parties.

With over 37 billion hours of time lost domestically every year waiting in line, these mobile waitlist management applications are providing a cost-efficient solution to help increase customer retention, create a 2-way communication channel between the restaurant and its customer and improve the wait time experience.  Although restaurants have been the main target for these apps, it will only be a matter of time for these waitlisting management apps to appear at hospitals, pharmacies, the DMV, car washes, amusement parks and other places where long wait times are common.

Threats to Consider

It has been argued that the market for NoWait is considerably larger than that of OpenTable’s (OpenTable offers an electronic reservation book for users to make restaurant reservations online).  A recent article stated that there are 270,000 casual dining restaurants that NoWait targets compared to the 35,000 fine dining restaurants OpenTable serves.  However, OpenTable has been quick to launch its own Table Management App that enables restaurants to manage their reservations and tables in sync with their OpenTable Electronic Reservation Book.  OpenTable’s market dominance and ability to offer both online reservations and waitlist management for restaurants without reservations poses a significant threat to any recent waitlist management apps.  Additionally, OpenTable’s recent partnership with Facebook adds to the social experience of the app, allowing users to share their restaurant visit or reserve on Facebook.  OpenTable already offers many of the features that waitlist management apps provide, stripping away uniqueness and competitive advantage.

OpenTable Table Management App:

opentable floor opentable floor2

Case Study

There have been many case studies performed to prove the effectiveness of mobile waitlist notifications.  Below is a summary of one performed by Buzztable on Penelope, a restaurant in NY (and one of my favorite brunch spots!):

[For the full case study: http://www.buzztable.com/customers/penelope/]

The Challenges

-Over 25% of guests added to wait list ended up “walking away” due to 60+ minute waits

-Received an average of 12 guests complaints per week regarding long wait times

-Staff was reluctant to change their previous wait list system

-Limited data on customers made it difficult to identify repeat customers

The Objectives

-Increase revenue by decreasing walk-aways and canceled tables

-Increase guest experience and overall satisfaction during wait time

-Achieve instant staff buy-in with minimal integration, training and upkeep

-Collect customer data and easily display to staff for improved practices

The Solution: BuzzTable

Wait List Management: BuzzTable provided Penelope with their WaitList+ platform, consisting of 3 parts: 1) an iPad-based Wait List Management application that allows hosts to greet and notify their guests with SMS-messaging and collect/store guest information; guests are then prompted to download 2) BuzzTable’s Consumer Mobile App (free for iPhone & Android) which gives customers the ability to check their wait list progress, browse top trending dishes with photos, unlock rewards, and provide private feedback; and 3) E-mail reports (sent daily and/or weekly) which send all collected data directly to the restaurant.

Custom Account Settings: Penelope’s account was created in roughly 15 minutes, which included custom text messages to match their brand, custom status colors on the WaitList interface, plus unique loyalty rewards, high-res photos of their top dishes, and custom feedback fields within the BuzzTable Consumer Mobile App.

5-minute Training: Penelope’s hosts were fully trained on the system in less than 5 minutes. This gave them confidence to use the system in a live environment immediately following training.

The Results

-28% Decrease in Walk-aways = $27,500 of incremental revenue over 60-day period (at an average guest check of $25 per person)

-1,101 additional seated guests

-Decreased Guest Complaints by 66%

-100% Approval Rating from Staff

Value-Add

-3,800+ Unique Customer Profiles Created (BuzzTable enabled FOH staff to identify repeat guests and VIPs. Of the 3,800+ guests, more than 700 enrolled into Penelope’s mobile loyalty program directly through the BuzzTable app. This opt-in process delivered email, birthday, Facebook and other key info on guests to the restaurant.)

-110+ Facebook Engagements = 4,100+ News Feed Impressions

-90% of Guests Agree BuzzTable is a “Big Improvement”

-Guest App Retains 45% More Guests (Guests who downloaded BuzzTable’s Mobile Consumer App are 45% more likely to be seated (not walk-away or cancel) than other guests.)

Share with me your thoughts on waitlisting management apps @tiffanydstone or comment below!

Sources: http://www.buzztable.com/http://qless.com/industries/restaurants/http://www.crunchbase.com/company/nowait#ixzz2d5D6GpLmhttp://www.benzinga.com/success-stories/13/08/3852548/pittsburgh-startup-nowait-could-overtake-opentables-volume-in-2014#ixzz2d5IYwrJEhttp://www.benzinga.com/success-stories/13/08/3852548/pittsburgh-startup-nowait-could-overtake-opentables-volume-in-2014#ixzz2d5IVeWdjhttp://techcrunch.com/2012/08/28/death-to-the-restaurant-buzzer-nowait-raises-2-million-for-ios-app-waitlisting-system/http://www.sfgate.com/business/press-releases/article/NoWait-Seats-16-Million-Diners-on-Par-to-Surpass-4727191.phphttp://thenextweb.com/insider/2013/05/01/bing-fund-invests-in-buzztable-an-app-that-tracks-when-youll-be-seated-at-your-favorite-restaurant/http://www.foodservice.com/articles/show.cfm?contentid=15701&title=Restaurant%20Text%20Pager%20Systems%20and%20Cell%20Phone%20Pager%20Systems%20-%20A%20Cost%20Benefit%20Analysishttp://www.tablesready.com/pricing.php

Lessons Learned from the History of Car Sharing

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A Quick History Lesson on Car Sharing

Car sharing is an alternative to car ownership and car rental, in which local users are able to access a network of vehicles in a city and rent the vehicles by the minute, hour, day, or purchase a monthly or annual-access membership plan.  Car sharing is intended to provide a solution to transportation and environmental issues.   Car sharing is not a new concept.  In fact, car sharing began in 1948 with a cooperative in Zurich, Switzerland known as “Sefage” (Selbstfahrergemeinschaft).  The idea was simple: if you can’t afford to purchase a car, share one.  Many other shared car experiments were attempted but were unable to grow large enough to sustain.  These later efforts include: “Procotip” (France, 1971 to 1973), “Witkar” (Amsterdam, 1974 to 1988), “Green Cars” (Britain, 1977 to 1984), and Sweden’s “Bilpoolen” (Lund, 1976 to 1979), “Vivallabil” (Orebro, 1983 to 1998), and a “bilkooperativ” (Gothenburg, 1985 to 1990).  Procotip used in-vehicle “meters” fed by tokens to enable members to pay for usage by distance.  Witkar used electric vehicles and limited its users to the city center.

The first wave of car sharing programs all survived for only a short period of time.   Their failures were observed to be the result of poor financial management and planning, inadequate marketing, lack of support from local governments and the small scale of the projects.  The car sharing model succeeds when both customer convenience and high vehicle utilization is achieved.

The second wave of car sharing emerged in the late 1980s and early 1990s.  In 1987, two car sharing cooperatives, ATG Auto Teilet Genossenschaft and ShareCom, were founded in Switzerland and would later merge in 1997 to form Mobility Carsharing Switzerland.  ATG began as an informal car sharing system that was motivated by the idea of satisfying the need for a car without actually having to own one.  In contrast, ShareCom expanded its offerings to not only share cars, but also share homes, tools and other goods.  ShareCom aimed to establish a communal system with its members.  Around the same time, in 1988, StattAuto Berlin was started as part of a university research to demonstrate the potential of car sharing as a transportation alternative in Germany.  In the first few years after its founding, StattAuto experienced 50 percent YOY growth, but this growth did not sustain when Berlin citizens began to expand beyond the city into areas where public transit was limited and realized the infrequency of their use of the program.  Others cancelled their membership because they found it more convenient to own a car than continuously reserve a shared car.  As a result, declining memberships and the high costs of maintaining the program led to an unprofitable business.  The reasons that caused the declining growth of car sharing for StattAuto were the same reasons for the many other failed car sharing programs that would follow.

It wasn’t until the 1980s that car sharing was introduced in the U.S.  Car sharing began in the U.S. with two experiments: Mobility Enterprise (1983 to 1986) and the Short-Term Auto Rental Service (STAR) (1983 to 1985).  The Mobility Enterprise program was run by Purdue University researches and was aimed to encourage the use of smaller, fuel-efficient cars and to reduce the need for additional vehicles.  STAR was established as a demonstration project by a private firm in San Francisco that served residents of a large apartment complex near San Francisco State University (Doherty, Sparrow & Sinha, 1987).

Carsharing Portland also began as an informal car sharing system, involving one car and a few neighbors.  It is recognized as the first official car sharing operation in the United States. Shortly after Carsharing Portland’s founding in 1998, Flexcar and Zipcar were started.  These programs were all station-based, in which vehicles are located at a designated location for users to pick-up and drop-off the cars.  In 2001, Flexcar acquired Carsharing Portland and in 2007, Flexcar and Zipcar merged.  And most recently, Zipcar was acquired by Avis for about $500 million at $12.25 a share, a 32% discount to Zipcar’s $18 IPO price.  Zipcar hadn’t turned an annual profit since its founding and as of September 2012, only had two month’s operating cash on hand.  The high fixed costs of fleet operations, including lease expense, depreciation, parking cost, fuel costs, insurance, gain or loss on disposal of vehicles, accidents, repairs and maintenance as well as employee-related costs, squeeze the margins of the business.  PhillyCarShare, acquired by Enterprise Holdings in 2011, also found itself in financial trouble with a debt of approximately $2.7 million.  Additionally, the need for rapid expansion to gain first-mover advantage and grow the customer base requires significant investments in vehicles and parking.  And especially in densely populated cities where membership growth is most promising, parking is scarce and expensive.

To be profitable, station-based car sharing companies will need to achieve economies of scale in a highly competitive environment, but the low barriers to entry in this business, which puts downward pressure on prices, and the required investments to grow the business make it challenging for these companies to achieve profitability.  Between 1997 and 2009, there were 34 car sharing programs launched and 15 program closures in the United States, yielding almost a 50 percent closure rate.

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Lessons Learned and the Future of Car Sharing

Fortunately for car sharing, history won’t repeat itself.  Today, there are more than 2 million members worldwide in car sharing programs and membership is expected to reach over 12 million by 2020.  A large part of this growth can be attributed to the changing attitudes and lifestyles of individuals, but even more influential are the technology and infrastructures that have made car sharing more convenient and available to individuals.

In the past, many car sharing programs were founded through university research, subsidized by the government or started as a small, private company.  As previously mentioned, these car sharing programs struggled to survive independently.  Today, through acquisitions by large rental car companies, many car sharing programs are able to continue to operate and expand its business despite the challenging margins by leveraging the infrastructure and resources of its parent company.  For example, Avis’ acquisition of Zipcar has helped Zipcar create a presence at airports and will allow it to break into the international car sharing market.  Rental car companies are also able to create a new revenue stream and grow their customer base to include short-distance or short-term rentals through the car sharing programs.  Many car manufacturers have also been successful in launching their own car sharing programs such as Daimler’s car2go and BMW’s DriveNow.  As of May 2013, Car2go operates over 7,300 vehicles, which serve seven countries and 20 cities worldwide with over 375,000 customers.  This March, Ford also started its own Ford2Go in Germany.

Technology is transforming the car sharing system by helping decrease some of the fixed costs per vehicle and attracting more customers to the concept.  The traditional station-based car sharing system has been reinvented to the one-way or free-floating car sharing system.  One-way rentals allow users to drive the vehicles anywhere within the operating zone and leave the vehicle in any legal public parking space rather than having to return the vehicle to the original location of rental.  Additionally, users pick up cars parked nearest to them by finding an available vehicle with the internet or smartphone app.  These technology solutions are attractive because they rid the high parking costs and inconvenience of having to pick-up and drop-off cars at a specific location.

New technologies, a growing interest and improved operational efficiencies suggest the future of car sharing is promising.  As of January 1, 2013, there were 46 active car sharing programs in North America with 1,033,564 members sharing 15,603 vehicles.

Share with me your thoughts on car sharing @tiffanydstone or comment below!

Sources: http://www.carsharing.net/library/North-American-Carsharing.pdfhttp://www.economist.com/blogs/babbage/2013/05/car-sharing-serviceshttp://tsrc.berkeley.edu/sites/tsrc.berkeley.edu/files/A%20Short%20History%20of%20Carsharing%20in%20the%2090s.pdfhttp://www.portlandoregon.gov/transportation/article/370287http://www.nytimes.com/2013/06/26/business/global/one-way-car-sharing-gains-momentum.html?pagewanted=all&_r=0http://onlinepubs.trb.org/onlinepubs/tcrp/tcrp_rpt_108.pdfhttp://carsharingus.blogspot.com/http://en.wikipedia.org/wiki/Car2Go