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Consumers have been educated over many decades that to buy ice you go to the local service station. These buying habits are difficult to break, but it is exactly what we are going to do.
When you place an ice machine the size of an Ice House onto a main road location and start selling 10kg of ice for $2.99, you are obviously going to have an effect on the local packaged ice industry.
The effect from one machine is only small in the macro scheme of things, particularly in a suburban area of a major city, but in a small town the effect would certainly be felt by any store that already sells packaged ice.
The bigger problem for the existing packaged ice industry is how these machines can impact their supply chain over the medium to long term.
As we discussed on our page about the packaged ice industry in Australia the packaged ice industry is dependant on the profitability of any particular "run". That is, the set delivery pattern for a single truck on any given day delivering ice to a number of retail customers.
To get maximum profitability, the truck needs to always go out full and hopefully return back to the depot empty.
When one Ice House is placed in the operating territory of a particular ice company, the ice company probably wouldn't notice much impact initially. The shear number of ice boxes in service stations, supermarkets, and liquor stores will surprise you. Take a look as you drive around one day.
Due to the vastly cheaper price of our vended ice, in theory the Ice House would have a small impact on each and every outlet that already sold bags of ice.
So say we have a 5% impact overall to every site within say a 2km radius of an Ice House? This has little impact on retailers individually, and the ice company would notice some reduction in sales in the area, but they are probably not worried by one isolated ice vending machine!
So say then we place another Ice House, far enough away from the first unit to avoid sales cannibalisation, but still close enough to the first unit so as to effect the incumbent ice company's run again?
All of a sudden the impact on the run for the ice company is starting to add up. If we did this again, the impact on the ice company may start to effect profitability, although for retailers in the area, they are still only seeing a 5% downturn each.
With 3 or 4 units in one area, we have started to impact on the run profitability. The response from the ice company can also be predicted.
The ice company either has to:
Pretty simple analysis.
They would do this is by adjusting their delivery schedule to reflect the lesser demand in the retail part of the supply change. For some retailers, a weekly delivery becomes fortnightly and for others maybe a fortnightly deliver becomes monthly.
If you compare this forecasted behaviour by the ice company to the pattern of demand that I have already identified on other pages of this website, then you can deduce that some retailers could be out-of-stock of ice for extended periods. It is just not profitable for the ice company to turn up more frequently.
In turn this drives more consumers to the Ice House as we are the place that always has plenty of stock.
The habits of our new Ice House customers have now been effected as well, because they now realise they have other options in future when they need to purchase ice. An option that is far less expensive and much more convenient.
It seems with this scenario, the long term future of the current packaged ice industry is seriously under question. At da-ice®, all we have to do is come up with enough capital and/or franchisees to make it all happen.
I just cannot see how incumbent ice companies can win.
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