Wednesday, September 9, 2009

The Inside Scoop On Kinnikinnick Direct Shipping

Someone "tweeted" today "wondering why Kinnikinnick doesn't have any price breaks on bulk orders- prices are as expensive as shopping in health food store!"

The explanation will take more than 140 characters so I thought I'd post the reply here.

First some background. When our family got involved in Kinnikinnick in 1997, availability of gluten free products was extremely poor throughout North America. The number one request we got at that time wasn't "can you make x product", it was "how can I get -any- GF products in my area". If you didn't have a local health food store way ahead of the curve, the answer was pretty much "you can't." Our first order of business was to figure out how to solve the availability issue.

When we started shipping our products directly to customers back in 1998, we spent months developing a system that would provide the best possible products at the least cost to our customers. Longtime customers may remember the modified atmosphere packed shipments through Canada Post and the US Postal Service. We charged $15 for these shipments which took up to 2 weeks (after they left our building!) to arrive via post. The shipping and packaging costs to us were high, the service was slow but most of all, product quality suffered greatly when we used modified atmosphere packaging (packages were flushed with nitrogen & C02 and sealed with a moisture scavenger packet) . We knew we had to find a different way to do things. For optimum product quality, we had to get the products to customers much quicker. We partnered with UPS to develop a system which is unique
to this day. We are able to offer overnight shipping (2 days max) for a flat rate fee of only $10. Why not $15 like our initial fee? The number one complaint we heard in the first 2 years of shipping was that the $15 flat rate was "too expensive". Our research showed us that for most people, $10 was perceived as fair and $10 is what our shipping charge has been for almost 10 years, even though UPS rates have substantially risen in that time.

You might be thinking, "Why can other companies such as Amazon sell with bulk discounts?" The simple reason is that most companies are shipping shelf stable products. These are either cookies and mixes, or modified atmosphere packaging, and all can spend a couple of weeks on a truck without a problem. Ground transportation = cheap. That's not an option for us. The majority of our products sold directly to customers are baked and shipped fresh. Oh and by the way, we don't use any preservatives. So for us, it's all about speed and quality. We have to get the products in your hands as fast as we can, so Air express is our only option. For you, it's about convenience. You can order this week and know exactly when you'll receive it next week. You can plan around your shipment. You can even have a shipment arrive at a hotel while you're on vacation.

So why are "prices are as expensive as shopping in health food store?" There are a couple of reasons for this. Firstly we'll go back to our $10 flat rate fee. If any of you have shipped a package overnight via an express courier, you may understand how expensive it can be but for for those who haven't here's an example.

Our average direct shipment package weight is 17 lbs. The cheapest cost to send a 17 lb package via UPS overnight from Florida to California is $112.36 using the Calculate Time & Cost tool on the UPS website. For second day service the prices drops to $82.24 (what a bargain!) So how do we ship that same 17 lb order for 10 bucks? Those prices listed on the UPS site are "retail", the most expensive. Because of the large volume of shipments we make (we're in the top 5% of all UPS shippers in Canada) , we get special rates that are substantially cheaper. But they are still quite a bit more than $10 a shipment. How do we make up the difference? Basically, we are subsidizing shipping costs so you don't have to pay more.

Unlike truck shipments, Air cargo pricing is based on a per pound basis so there is little or no price break on shipping costs as order size goes up.The more we ship, the more expensive it is. However do remember the following. Because cost of shipping ($10) we charge to you does not increase as order size grows (up to $200 in the US) you actually do get an "unofficial" discount if you look at the numbers.

Example 1
2 loaves bread @ ~$5 = $10
2 pkgs donuts @ ~$7 = $14
Shipping @ $10 = $10
====================
Total = $34
Avg = $8.50 per item shipping included
Shipping = $2.50 per item
Example 2
6 loaves bread @ ~$5 = $30
6 pkgs donuts @ ~$7 = $42
Shipping @ $10 = $10
====================
Total = $82
Avg = $6.83 per item shipping included
Shipping = $0.83 per item
Example 3
12 loaves bread @ ~$5 = $60
12 pkgs donuts @ ~$7 = $84
Shipping @ $10 = $10
====================
Total = $154
Avg = $6.41 per item shipping included
Shipping = $0.41 per item

By ordering either 12 or 24 items you can get a "discount" of between 24% & 32% based on your average item cost. And this "discount" applies every day, year round.

That being said, the biggest reason for us charging what a health food store would charge is this. We don't want to undercut our retail partners. Local availability has always been the best option for our customers. The ability to run out and buy a loaf of bread on a Saturday morning is something that most people take for granted. Until the last 5 years or so, in most places, people on a GF diet have not had that option. It was: place an order online, wait a week..or two ... or three and get your loaf of bread. We developed our pricing structure so that your local store can sell products and compete with us to get your business.

It's important to remember that we are the manufacturer of these products. We're not an online "mall" or service, even though we do offer a direct to home service. For us, this is filling the gaps, where local stores do not carry any GF products. We sell the vast majority of our products to distributors, they mark it up and sell to these stores. The stores mark it up again and sell to you. Granted, some stores mark GF products up far more than is reasonable, but this is rare. The majority understand that if they offer you a fair price and a good selection, you will come back time and time again. It would be unfair to undercut these stores. Many have been our customers for over a decade. Because they buy from distributors, they need to include the distributor markup as well as their own. If we were to charge less than what the local store can reasonably charge, you might not buy from them and it might result in 1) no locally available GF products & 2) an out of business sign hanging on the door. There are thousands of small retailers and health food stores who have built businesses in your neighborhoods who rely on your patronage and we do whatever we can to support them.

If you have any other questions regarding shipping of our products, like why is there a $200 limit for US shipments or our short ship policy, etc I'd encourage you to use our Help Center Console from any page on our website. Just select Shipping from the Drop down and then the topic and click Show Answer.

7 comments:

The Girl in Pink said...

Great explanation. I'm sure people will appreciate your detailed response. I personally appreciate that you don't want to "compete" with local stores carrying your products. Another reason why you are my #1 favorite GF manufacturor!

Sea said...

Hmm. Yes, you have a more than fair shipping policy, but it is unfortunate you can't provide encouragement to customers to purchase in bulk from you like other family businesses (Ener-g Foods). Further, selection of Kinnikinnick products is extremely limited in health food stores in my area. It's nice you don't want to undercut the little guys, but Whole Foods is the only grocery store close to me and they are hardly a little guy that would be impacted by you offering a discount on your products. I also think that customers who prefer to buy online in bulk like myself and those who buy in stores tend to be different individuals, so you really are limiting yourself by not offering any advantage to customers ordering in bulk. I would love to patronize stores that carry a good variety of your products, but this would require at least an hours drive. Your explanation of the "discount" re: shipping doesn't apply when you consider that the customer doesn't pay any shipping fee at all when they buy in a store. Consider that I and other customers are interested in trying more of your products than are available locally and want to place an order with you, but feel reluctant to do so because of the price. Most of us can't afford to buy in bulk at regular health food store prices, which is why we buy through online sources like Amazon. So, instead of buying a large bulk order from your company as I would rather do, I'll end up baking my own goods at home. I don't think the mom and pop shops or Kinnikinnick benefits from that. You should also consider offering a sampler pack of your gluten-free bread products like Ener-g foods does so that customers have a chance to order from you, try a small amount and find their favorites for larger orders. I am not crazy about their products, but they have been doing this since I was a child and are most similar to your business model. They charge for actual shipping charges but offer sampler packs for sale as well as having bulk discounts.

By the way, if you think offerings in gluten-free foods were slim in 1997, you should have looked at the offerings in 1979, when I first had to go onto the gluten-free diet. 1997 offerings were relatively plentiful.

JayB said...

Thanks for the comments. As I noted in the post, we really can't do things the way Ener-G does. They have shelf stable, modified atmosphere packaged products which can be shipped via ground at very low cost, we don't. We've got to ship UPS overnight or we don't ship at all. Our focus is to get the product more widely available locally and to provide a gap fill service for those who can't find what they want close by. We've got almost 4000 stores listed on our website store finder carrying our products so availability is getting better every day.

We have tried sample packs in the past and we may look at one again in the future. Our current focus is to provide Dietitians and healthcare professionals "starter packs" which they can hand to newly diagnosed celiacs.

gfcfcanadianstyle said...

I would argue that there is a "shipping cost" for shopping at the local store - your gas!

My local HFS is about a 200 km round trip, about a $30-40 gas cost. Of course, when I go to the city it is for more than just GF items, but I have had to make at least 1 trip specifically for GF food.

I think $10 is incredibly reasonable for the speed of delivery.

Conrad said...

Wow... your flat rate shipping policy is FANTASTIC!! Anybody who thinks they aren't getting a discount on the total cost of ordering several items at once doesn't have to do much shipping. I have my own business and regularly ship both overnight and and slow boat, and your explanation is right on! Thanks for GREAT gluten free food, and for your very smart shipping policy.

Conrad in Spokane, WA

Anonymous said...

I for one love your shipping, thank you very much. just to make things clear are all of your products free of perservatives?

That would be great to pick up any kinnikinnick and know its safe. You are my primary source for food seeing that we are gf/sf/df/ef/and now preservative free.

thank you for great products.

JayB said...

As the post says, we don't use any preservatives which is why we ship the way we do. We need to get products to you as quickly as possible.