Markets
FDX

The Post Office Wants to Gorge on Your Groceries

Grocery delivery isn't such a novel idea. Webvan is one of many poster children from the dot-com boom era that quickly flamed out, along with HomeGrocer.com, the larger grocery delivery service it eventually bought out -- both of which ended up in bankruptcy.

The rise of electronic and mobile communications heralds the death of the first-class letter. Data: United States Postal Service.

Since people don't write letters as much as they used to -- first-class mail volume has tumbled to levels not seen since the 1980's -- the agency feels mail carriers may as well deliver your bottle of ketchup and Frosted Flakes.

The USPS points out the grocery delivery business is booming. In its proposal, it says "grocery delivery services are expanding across the nation, with businesses ranging from the nation's largest retailers, to niche operators, to the popular car service Uber entering the marketplace." That has them salivating over new revenue-generating plans at the money-losing agency.

Small pond, big fish

While the USPS is correct about the fast-growing nature of the industry, that doesn't mean it should be allowed to use its monopolistic power for delivering first-class mail to displace private enterprise.

It's already capitalizing on its position to undercut the prices of package delivery services FedEx and UPS , who've been forced to raise rates to offset rising costs. The post office, though, is apparently immune from such market forces, because just weeks after its rivals announced their rate hikes, it applied for and was granted the ability to cut rates between 30%-50% in weight categories that are used the most by e-commerce sites.

FedEx charged it was a blatant attempt to steal e-commerce customers from while UPS said it was subsidizing package delivery with its first-class mail monopoly. Where the USPS was raising rates on mailing out a letter -- hiking them on an "emergency basis" but still managing to lose $2 billion -- it was cutting them where the competition was thickest.

Hungry for more

And now the USPS has its eyes set on the grocery delivery service.

The real rub is that Amazon is actually assisting the USPS in its efforts. They've already tested the program together in the San Francisco area where it recorded 160 deliveries per day for 38 ZIP codes.

From the supermarket to your doorstep. Photo: Flickr user Dan4th Nicholas.

It builds on the partnership Amazon launched with the post office last November to begin package delivery service on Sundays. In essence, the e-commerce leader -- even though it was also forced to raise the rates of its premium Prime delivery service -- is running around FedEx and UPS, saving itself money by using the government's resources.

Down the rabbit hole

The post office has been a money-losing operation for years. Its default argument has been the losses are caused by a congressional requirement that it prefund 75 years worth of retirement benefits for its workers over a 10-year period, something it says no other agency is required to follow. The General Accountability Office has basically debunked that notion the USPS had such an onerous burden imposed on it, and says it's more a case of semantics.

The fact is, despite a few spectacular wipeouts at the dawn of the Internet age, the private sector is meeting the needs of the grocery delivery marketplace quite well. An intrusion by the government now using the power of its mandate to deliver mail could end up crowding out smaller, less capitalized businesses.

In the end, government perhaps does best when meeting needs unmet by private enterprise. As even the U.S. Postal Service admits, grocery delivery is a burgeoning industry teaming with competition.

Warren Buffett's worst auto-nightmare (Hint: It's not Tesla)

A major technological shift is happening in the automotive industry. Most people are skeptical about its impact. Warren Buffett isn't one of them. He recently called it a "real threat" to one of his favorite businesses. An executive at Ford called the technology "fantastic." The beauty for investors is that there is an easy way to ride this megatrend. Click here to access our exclusive report on this stock.

The article The Post Office Wants to Gorge on Your Groceries originally appeared on Fool.com.

Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, FedEx, and United Parcel Service. The Motley Fool owns shares of Amazon.com. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

FDX WMT AMZN UPS

Other Topics

Stocks