Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Grocery Wars

The Threats to UPS

The threats to UPS are many and they are growing every day. Thus, the threats could limit United Parcel Service’s (NYSE: UPS) days a superb value investment.

Currently, UPS is offering investors a 96¢ quarterly dividend payable on 12 March 2019. Impressively that dividend is up 5¢ from 91¢ on 5 December 2018. Hence, UPS is paying a quarterly dividend of nearly a dollar.

Moreover, UPS offered investors a dividend yield of 3.46%, an annualized payout of $3.84, and a payout ratio of 53% on February 27, 2019. Plus, UPS is entering its 9th year of divided growth.

Is UPS Doomed by these Threats?

Disturbingly, the threats to UPS are numerous and growing. In particular, United Parcel Service (UPS) depends on a customer that could grow into its greatest competitor.

Some of the greatest threats to UPS include:


Amazon is trying to hundreds of competitors to UPS by offering up to $300,000 in financing to anybody willing to start a delivery company. In fact, a person with just $10,000 can apply to make third-party deliveries of Amazon merchandise, Business Insider reports.

Moreover Amazon is buying 20,000 Mercedes-Benz Sprinter vans from Daimler (OTC: DAI) for the third-party delivery network. In addition to vans, third-party delivery services get access to Amazon-branded uniforms, a fuel programs, and low-cost vehicle insurance.

Amazon is even buying a $700 million stake in the electric vehicle company, Rivian, Car and Driver reveals. Amazon is interested in Rivian because it is developing an electric pickup truck with a 400 mile range.

To explain, Amazon could use Rivian’s pickup chassis for an electric delivery van. Logically, Amazon could reduce fuel costs by offering branded electric vans to its delivery partners.

Hence, Amazon is trying to create hundreds of competitors to UPS operating much like FedEx (NYSE: FDX).

Labor Unrest

In particular, those delivery partners could undercut UPS’s labor costs because they probably will not use union labor. Meanwhile UPS is a Teamsters shop.

Under these circumstances, UPS could find itself in the middle of a vicious and destructive war between Amazon and unions. For instance, it is easy to imagine desperate Teamsters smashing Amazon-branded vehicles and beating up workers in Amazon uniforms.

Politics will complicate an Amazon/Teamsters conflict. For instance, a Democratic president beholden to union votes is likely to weigh in on the Teamsters’ side. Meanwhile, an anti-union Republican like Trump could take the company’s side.

Finally, unions are likely to strengthen their hold on companies like UPS and fight harder to keep that hold. To explain, UPS is one of the few strong union shops left. Thus, I cannot picture the Teamsters giving it up without a bloody fight.

Instacart, Kroger, and Ocado

The grocery delivery service Instacart is worth $8 billion, CNN Business claims. In addition, Instacart is planning an initial public offering (IPO) for 2019.

In fact, Instacart now claims to serve 15,000 stores in 4,000 states. Hence, Instacart now operates a delivery network rivaling UPS’s. Thus Instacart could easily deliver packages in direct competition with UPS.

Notably, Instacart’s partner Kroger (NYSE: KR) America’s largest standalone grocer, is building robotic fulfillment centers to service delivery drivers in Tampa and Ohio. Moreover, Kroger is working with Britain’s Ocado Group PLC (LSE: OCDO) to develop advanced robotic package sorting facilities. In fact, Kroger owns 6% of Ocado, which claims to operate the world’s most advanced robotic fulfillment centers in the United Kingdom.

Hence, Kroger, Instacart, and Ocado could instantly deploy a fast package delivery service in competition with UPS. Since that service could roll out overnight, UPS could have a hard time coping with its advent.

Meal delivery apps like GrubHub, Deliv, DoorDash, and Postmates

To explain, the meal delivery apps have built large networks of drivers quickly. Moreover, these drivers have vast amounts of delivery know-how.

For instance, the publicly traded takeout app GrubHub (NYSE: GRUB) claims to offer meals from 95,000 eateries to 16.4 million active customers. In addition, GrubHub claims to operate in 1,700 American cities.

GrubHub is not making money, but its revenues grew at a rate of 51.63% during 3rd Quarter 2018. Intriguingly, GrubHub reports a gross margin of 51.63% and a gross profit of $135.71 million on revenues of $247.23 million for 3rd Quarter 2018.

Hence, GrubHub has the resources to compete with UPS if it wants to. Nor is it just GrubHub, UPS management needs to worry about.

For instance, DoorDash is supposedly worth $6 billion and capable of borrowing $500 million from investors, TechCrunch claims. Meanwhile, Postmates has privately filed for an initial public offering (IPO).

How Meal-Delivery Apps are Threats to UPS

Additionally, apps like GrubHub and DoorDash are gathering vast amounts of customer and delivery data. That data could obviously be used to build delivery networks that compete directly with UPS.

GrubHub or DoorDash could use that data to create a package delivery service in direct competition with UPS. For example, a GrubHub or DoorDash driver could pick up an order at a Walmart store or a Kroger/Ocado fulfillment center and take it to a customer.

Importantly, GrubHub and DoorDash’s labor costs could be lower because their drivers are not union. Plus, GrubHub and DoorDash do not have the expense of buying, insuring, and maintaining vehicles. Instead, such apps, like Uber, pass those expenses onto the drivers.

Amazon Restaurants

Under these circumstances, UPS’s greatest nightmare is Amazon offering package delivery through Amazon Restaurants or partnering with GrubHub, DoorDash, Postmastes, or Instacart. For example, an Amazon Restaurants driver could pick up Amazon orders from Amazon Go; or Whole Foods, and take them to customers.

A major menace to UPS is Amazon expanding branded driver program to Amazon Restaurants drivers. For example, Amazon could provide each of its best Restaurants drivers with a van to make other deliveries with.

Thus Amazon could use Amazon Restaurants to gather data for its delivery scheme expansion. In particular, Amazon could identify which communities and populations are most open to delivery. Moreover, Amazon can use data from Amazon Restaurants to identify the best drivers and hire them.

The Wide-Open Delivery Market

Consequently, UPS is moving from an environment where it had open major private competitor; FedEx, to a wide-open delivery market.

This wide-open delivery market is the greatest threat to UPS because anybody with a smartphone and a van is now a potential competitor. Only time will tell if UPS will survive in the new wide-open delivery market technology is creating.