1 September 2021. Water | Glasses

The disappearing Ogalla aquifer; Warby Parker, Essilor, and the high margin spectacles business

Welcome to Just Two Things, which I try to publish daily, five days a week. Some links may also appear on my blog from time to time. Links to the main articles are in cross-heads as well as the story.

#1: The disappearing Ogallala aquifer

The Ogallala Aquifer is one of many around the world that is being drained by too much demand for its water, and on her blog Marion Nestle reviews a book looking at why this is.

The book is Running Out by Lucas Bessire. Bessire is an anthropologist at the University of Oklahoma whose family has farmed the land in West Kansas that has benefited from the aquifer. Nestle describes the book as “a history of the great plains viewed through a personal and familial memoir that reads like a novel”.

In the 1940s, the water seemed abundant—which meant that sustainable farming practices that would have helped preserve the aquifer were abandoned. Why is there no real signs of concern now?

Well, in one line, corporate farming:

…corporate profits are a key part of the aquifer depletion puzzle. It should have come as no surprise. The scale of industrial farming is staggering. Southwest Kansas is home to some of the nation’s largest corporate feeders, beef- and poultry-packing plants, slaughterhouses, dairies, milk-drying plants and hog farms. More than 2.5 million beef cattle live there in feedlots that handle tens of thousands of animals. Just across the Oklahoma line, one company processes 5.6 million hogs per year in its plant…Multinational meat-packing companies operhoe slaughterhouses that process several thousand cattle each day. All are billion-dollar businesses. They drive farmers’ choices to produce corn, silage, sorghum, or alfalfa. Their profits depend on aquifer depletion.

(The map shows the state of the Ogallala aquifer in 1997. By Kbh3rd, CC BY-SA 3.0, via Wikimedia Commons)

The history of this land isn’t just about the aquifer, however. There’s an earlier story in which native Americans were either killed or driven off the land. In a striking passage in the book, Bessire peels back the layers of history that might be needed to make up a full account:

So where can a true reckoning with depletion begin and where does it end? With a strategy to update management practices through more precise forms of modeling and expertise? With the innovation of more-efficient irrigation technology and crop varieties that require more water? With a sociology that details how agrarian capitalism drains water and wealth from the Plains to enrich investors elsewhere? With a diagnosis of how this case illustrates White supremacy, toxic masculinity, or the sentiments and logics of settler colonialism? With a chart of the ways aquifer losss combines with climate chage to make ours an era of planetary ends?

I’d been looking at Stewart Brand’s pace layers model today, and this account almost seems to map on to that—working through “fashion” (the management practices seem to operate on the timescale), through commerce, through infrastructure (which includes knowledge infrastructure) to the “slow” layers, of governance, culture, and nature.

And it also reminded me of something else: the passage in John Steinbeck’s The Grapes of Wrath—quoted in Alastair McIntosh’s book Soul and Soul—where the about-to-be-evicted farmers realise that even though the bank is made up of people, it has a life of its own:

“Sure, cried the tenant men,but it’s our land…We were born on it, and we got killed on it, died on it. Even if it’s no good, it’s still ours….That’s what makes ownership, not a paper with numbers on it."

"We’re sorry. It’s not us. It’s the monster. The bank isn’t like a man."

"Yes, but the bank is only made of men."

"No, you’re wrong there—quite wrong there. The bank is something else than men. It happens that every man in a bank hates what the bank does, and yet the bank does it. The bank is something more than men, I tell you. It’s the monster. Men made it, but they can’t control it.” 

#2: Warby Parker, Essilor, and the high margin glasses business

Over at his investment newsletter The Diff, Byrne Hobart takes a look at the eyewear industry through the lens of Warby Parker, an upstart challenger to the company that more or less has a monopoly on the category, EssilorLuxottica.

(Photo by Barebibotra, CC BY-SA 3.0, via Wikipedia)

EssilorLuxottica is part Italian, part French, and privately owned. Although you have likely never heard of it, it owns most of the eyewear brands that you have heard of: Oakley, Dolce&Gabbana, Oliver Peoples, Prada, Ray-Ban, Valentino, Versace. Plus an awful lot of shops.

It happens that this is a good category to have a near monopoly in: prices are high and margins are wonderful. (If you don’t believe me, just count the number of opticians shops you see the next time you’re walking around somewhere with a decent bit of retail.)

Hobart describes it this way:

The eyewear business is a good place for a monopoly to operate, since there are so many opportunities for price discrimination. Glasses can be a healthcare expense, where no one likes to economize and many customers aren't spending their own money. And they're also fashion, an area where buying the most ridiculously expensive brand is an easy heuristic. It's unclear exactly how much market power EssilorLuxoticca exercises, and how well this can be differentiated from the usual margins that a vertically-integrated seller of luxury brand products would achieve. But they certainly get accused of it, at length.

Hobart is interested in the fact that Warby Parker is growing despite of Essilor’s position in the past (Disclosure: I have done consulting work for Essilor in the past). I’m not going to spend much time on their strategy—Byrne Hobart does a perfectly good job of that in his piece. But in two lines, it seems to be:

1) make the glasses purchasing process easier, both in terms of convenience and price, and then 2) extend that ease-of-purchase through as many channels as possible—a website, an app, and physical stores.

Effectively it’s the proportion of repeat purchases that make the real difference to the business model—so data and customer management might a difference—but there are also plenty of competitors who are trying to wreck the economics of the optician business by selling direct.

That’s why, when you buy glasses in a store, such as the UK chain SpecSavers, there’s so much theatre about the eye test, as you get ushered through different levels of welcome and inspection before ending up in the care of the optometrist in a room that is packed with expensive looking eye-test technologies.

The last time I went, I was also impressed by the anchoring that went on when it came to paying the bill. The sales guy listed up the “full” price of the eye test and the two pairs of glasses I’d bought (which was somewhere north of £400), and then proceeded to knock off, line by line, all of the bits that were free or discounted, which more or less halved this total. 

It was like watching a magician pull a cloth off the table and leave all of the crockery intact. I knew exactly what he was doing, and I still ended up paying more than £200, but suddenly the prices all seemed reasonable.

j2t#159

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