Weekly Update: Amazon, Fedex & Shopify Fulfillment, CSU, Aldi, Alcon, MNDY

Content Published Last Week

1. IP ANALYSIS: Amazon, Fedex, Shopify, & Multi-Wave Dispatch

2. Fedex Express: The Design & Evolution of a Delivery Network

3. Constellation Software: Competition, Hurdle Rates & Deal Flow

4. Aldi: Culture & Operations of a Hard Discounter

5. Google Workspace vs Microsoft 365

6. Alcon & Global Contact Lenses Competition

7. Monday.com: Comparison with Asana, Airtable and Jira

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Amazon, Fedex & Multi-Wave Dispatch

One specific quote by Andy Jassy stood out on AMZN’s Q4 22 call:

“it's important to remember that over the last few years, we took a fulfillment center footprint that we've built over 25 years and doubled it in just a couple of years. And then we, at the same time, built out a transportation network for the last mile roughly the size of UPS in a couple of years.” - Andy Jassy, Q4 22 Earnings

Since 2013, when Amazon started heavily building its network, its retail fixed asset base has grown 13x. Since 2019, it has nearly tripled from a $40bn base.

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Not only has AMZN built the last-mile capabilities of UPS and Fedex in 3 years, we believe it has structural advantages embedded in its network design. A crucial part of this advantage stems from ‘multi-wave dispatch’ capabilities from its delivery stations.

We interviewed a Former Fedex executive, who spent over 35 years at the company, and shared our analysis on how multi-wave dispatch is a structural advantage for Amazon compared to Fedex and UPS.

Multi-wave dispatch enables AMZN to greater utilise its fixed assets relative to single-wave dispatch processes used by legacy carriers. In 2022, we estimate Amazon delivered nearly double the number of parcels as UPS and Fedex with under half the delivery stations.

The higher the volume shipped through each station, the higher the ROIC. AMZN passes back these higher returns to customers in lower shipping prices per parcel.

We explore how the legacy carriers’ challenges are deep-rooted in its network design and how Buy with Prime could impact Shopify’s fulfillment plans.

Members can read our full analysis here.

Competition for Constellation Software

Over the last 6 months, we’ve been collecting private CSU-replicas across the US and EMEA. We’ve currently identified ~20 small, private CSU-type companies. Everyone wants to replicate the model: buy and hold niche VMS companies selling for ~5-6x EBIT. Most of these competitors are also run by Former CSU execs.

The question is, as always, so what?

How could increased competition impact CSU?

This interview with a Former M&A executive, now working at a private CSU-type acquirer, explores implications of higher competition for Constellation.

There are two structural advantages that seem to protect CSU’s economics: historical transaction data and business development processes and experience.

CSU has the data and experience of over 900 acquisitions. More specifically, experience in making operational improvements post-acquisition gives CSU an edge over less-experienced acquirers:

"When they look at a business, although the hurdle rates might be quite high, they would build into their acquisition price if needed, that we can afford to get rid of three heads and put through a 25% price increase, which can move the IRR needle hugely. A private equity firm buying a business wouldn't factor that in unless they knew what they were doing. That's where they often lose because they wouldn't back themselves to make operational changes CSI knows they can successfully make." - Former M&A Director at CSU

CSU also has the largest and most efficient deal pipeline:

"Whatever BD activity a private equity firm does, CSI has to do at least three times as much, which means it has to be well-rehearsed and slick. Everyone has to know their piece and what they're doing. We have weekly discussions about it and you're constantly tracking success, capital deployed and money in and out. How many calls and emails did you do this week? How many VIP leads did you engage? You must have had a meaningful conversation which means you received information from them which wasn't publicly available, otherwise you didn't engage with them. Having such high hurdles means everybody is working hard to do the best that they can." - Former M&A Director at CSU

However, CSU could face increased risks as it decentralizes M&A and pushes decision-making down the organisation.

The further you push that responsibility down, the caliber of M&A execution gets worse. If you don't have hard and fast rules, and Mark cannot look at every deal, it's a way for him to ensure nobody does anything silly and things run away. As the tiers get lower, the M&A knowledge gets weaker. I see why he wants to keep to the hurdle rate, because you have people who don't know what they're doing tasked with spending millions. That's probably what goes through his mind, whereas if he was doing it all himself, he would take a different view." - Former M&A Director at CSU

Losing talent could be a longer-term risk for CSU that may not show up in the economics for years to come. This interview explores such competitive risks further.

Aldi & Low-Cost Operator Culture

Aldi, the discount grocery retailer, entered the US market in 1976. Now present in 38 states in the US, with an estate of ~2,200 stores, Aldi is the fastest growing grocer with over 1000 new stores added in the last 10 years.

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We interviewed the Former CEO of Aldi UK to explore the principles of a successful discount retail model. There are many lessons and great stories of the founder and Aldi's culture in this interview.

From studying either Jim Sinegal, Michael O'Leary, or Karl Albrecht, it's clear the low-cost mentality is in their DNA. It's part of everyday life. And it permeates all decisions, big and small:

If you built a new store and the car park gradient was more than 2%, this was an owner that could spot it before he drove onto the car park. He would claim, if the customer lets go of their trolley, while they are trying to fill their car up, the trolley will roll away, if it’s more than 2%. It will either hit another car or it will roll away so someone will have to go and collect it at the edge of the car park. All of that means that you will lose trolleys, they will get rusty, they won’t have the same life length and you will need labor to collect the trolleys. For him, 2% maximum car park gradients were a way of saving money and woe betide anybody who didn’t pay attention to that and take care of those kind of things - Former CEO, Aldi UK

On the other hand, although Aldi's founder was laser-focused on reducing costs, he understood the power of hiring the best:

It wasn’t always about not investing. In fact, it was often the opposite. If you invested a bit more, could you get a lower cost of operation? That manifested itself in the juxtaposition of, how come we have higher salaries than anybody else in the industry and, at the same time, there is constant messaging about being very careful with your spending. For him, it was always very clear. If you have the best people, you will get the best results, you will have the lowest cost of supervision and you will have the highest productivity and highest level of innovation in cost management. - Former CEO, Aldi UK

Google Workspace vs Microsoft 365

A Former Strategy Executive at Google Workspace explores what it's like to compete with 365:

"Google tackles that by making enterprise software as good as consumer software from an end user standpoint. That includes security because the zero-trust revolution happened from hacking a Microsoft Surface. The way they countered it was to sell the highest possible SKU to the same people who were affected by the hack. Google has the opposite view that everything is secure by default. The problem Google faces is making it administratively easier to use, with similar bells and whistles a Microsoft or Oracle administrator is comfortable with. They're actively working towards solving those problems with Workspace."

Alcon & Global Contact Lenses

A Former Director at Alcon shares insights into why the contact lens oligopoly is attractive and how Alcon is positioned:

In contact lenses you have the big four – Alcon, Cooper Vision, J&J and Bausch, which is a bit of a distant fourth but still a player – and then you have everybody else. Then there are the other upstarts like Hubble, who are trying to make noise coming into the market. One of the things about the contact lens space is the scale you have to get to; the investment is huge. You’re talking hundreds of millions of dollars for these lines to be able to get up to the level of the big four, so there are huge barriers to entry for somebody who just wants to come in and develop contact lenses, it’s very challenging.

Monday: Comparison with Asana, Airtable and Jira

A Former MNDY Product Manager on differences to Asana and Jira:

"Monday is a table where each column is a building block. For one moment, a column can show the status of a task, done or in progress, but because we look at it as a building block, it can be turned into a dashboard which shows how many tasks are in progress or on hold. Columns can be connected to create a workflow or CRM. One board shows your existing customers and another your leads. Leads transfer into the other board creating a flow between boards. Each board is a building block of items, which in turn are also building blocks. An item could open up as a card on the side and become a customer with attributes that make him special, such as how much revenue he brings or how much time he uses your product. Suddenly, the board becomes a CRM."