Food Merchants Cut Shipping Costs Without Cutting Corners

May 28, 2013 3:49 PM  By

For direct-to-customer food merchants, the cost to ship merchandise can be rather steep. And when you add in factors such as package weight and spoilage risks, customer incentives such as free shipping is nearly impossible.

But it does not mean direct-to-customer food merchants are not finding ways to cut delivery costs without cutting corners.

For example, Fairytale Brownies, which bakes and ships more than 2.5 million gourmet brownie and cookie gifts annually, worked with UPS to streamline its shipping process and save $15,000 in 2012.

Fairytale Brownies has implemented comprehensive software solutions like UPS WorldShip, which simplified the shipment process and helped the brownie company minimize costly mistakes as well.  The company also has been able to save 1,500 packages through the use of UPS Delivery Intercept.

Kim Silva, operations team leader for Fairytale Brownies, said the company considers UPS a partner.  She added, “[UPS] is very flexible and one of our main partners in business.”

Fairytale Brownies began using UPS in 2009; the company previously used FedEx and said it went through long negotiations with both shipping companies.  Silva said UPS offered better incentives overall.  Its systems, were more advanced than their previous carrier in what they could do online, she said.

“UPS was willing to give [us] more than FedEx in terms of savings,” said Silva.  “We made the switch; it has been a better fit for us overall.”

Silva said since Fairytale Brownies ships perishable products from its headquarters in Phoenix, AZ, it needs to use special insulation and packaging.

“It’s different when you are shipping something that is not perishable,” said Silva.  “We do get high-shipping cost complaints; when you look at our competitors we actually come in lower than what our competitors are charging in shipping methods.”

According to Silva, during the hot summer months, they do not ship packages using any method that will have the product sitting over the weekend in transit.  Fairytale Brownies’ standard delivery method is three business days.

“If we were to ship a package out on Wednesday during the summer, going standard three business days, it would not arrive until Monday,” Silva said. “This means it will sit in a warehouse over the weekend and be in transit for five days.”

Silva said Wednesday they “internally” upgrade packages to arrive by Friday. If it’s Thursday or Friday, the only option for a customer is to select an expedited delivery for overnight arrival or Saturday arrival.

When it is not summer, the heat is not a factor and it doesn’t matter, and Fairytale Brownies will ship Monday through Friday, Silva said.

“It is really something we deal with each year, we feel we have perfected the way we handle it,  we know what we’re doing as far as perishable, with coolers, ice packs and foam insulation,” said Silva.

Silva recommends other food merchants do their research and make sure they recognize it is a perishable product and look at what where it is going in the summer.  She recommends doing testing to figure out what the best way to get the product to the recipient., such as investigate different coolers and do testing.

Tony Cox, president of food catalog consultancy 5th Food Group, said one of the biggest challenges food merchants have; unlike non-food merchants like Amazon and L.L. Bean is the ability to offer free shipping.

“When you have a 20 pound box going out the door with dry ice and a cooler, it is impossible to offer free shipping, but people have come to expect free shipping,” said Cox.  “Food merchants are competing with low-cost people offering free shipping; people are saying again, I am not going to pay shipping.”

Cox said what food merchants are doing is taking a higher markup on the product itself and are using that added gross margin to offset some of the shipping cost.

To cut costs with shipping, food merchants are looking into using Parcel Post, it is much less expensive than UPS and FedEx, he said, but it doesn’t have the ability to be tracked.

“We are starting to see companies offering lower shipping rates to ship it Parcel Post,” said Cox.

Cox said food merchants are also shipping to distribution center and shipping locally from those centers.

“It’s really come back strong in the last few years.  What it enables you do, you don’t have to ship a perishable product all across the country.”

Cox said merchants are also partnering with other companies instead of using a 3PL merchants are partnering with one another, and this is turning merchants into 3PL companies.

According to Cox, for items that require expedited delivery for highly perishable items, merchants are charging the customer the two to three day delivery, but are using standard ground when the carrier can guarantee one to two day delivery.

“They are utilizing their system and the carriers.  Subsidizing some of these order that they do require two-day air and they are breaking even,” said Cox.

Mo Frechette, owner of food and gift mail-order company Zingerman’s Mail-Order, said there are two levels of shipping perishable foods; there are foods that freeze and ones that can’t be frozen.

Frechette said the hardest time to ship is during the summer with perishables that can’t freeze but can melt, like cheese.  Zingerman’s Mail-Order has experimented with dry ice and Styrofoam.

“We get it right most of the time, but [the summer] is not the easiest time, most of the time we have say ‘how about you call back in October,’” said Frechette.

Frechette said Zingerman’s Mail-Order does not look to break even on shipping costs on a weekly or monthly basis; they look at the whole picture of shipping.  Frechette said what they want to do is provide a consistent charge for shipping to their customers.

Frechette said food merchants are experimenting with free shipping, and how it changes the way shoppers shop with them.

“It really gets rid of the shipping charge obstacle in the customer’s mind, even though the product costs more, they kind of look at the price and say that is a good or bad price,” said Frechette.

Frechette advises food merchants to get over trying to be fair with shipping. Nobody wants to shop with you when you present them with 50 different rates from 50 different states, he said.