Case Overview and Key Issue
Grocery Checkout Inc. (GCO), an online grocery delivery service was founded in 2005 by Nathan Felder and his fellow teammates at the University of Western Ontario (Western) as part of their business project. Recently, investors of GCO have been pressuring Felder continually for faster growth, and he has a number of growth approaches under consideration. As the co-founder and chief executive officer (CEO), Felder wanted to reflect on which option would be the best fit for GCO and how it might affect his role in the company. Company's Strategy
CGO originally focused on convenient service, as it was founded on the idea to serve students without transportations. Felder believed that the business should also focus on quality and value to be sustainable and therefore adopted a product/service differentiation strategy for CGO. Macro Environment Analysis - PESTEL
Political Environment: As a Canadian controlled private corporation (CCPC) with only $35,805 net income before tax, GCO's operation is encouraged by the Canadian government through various tax incentive programs. The tax incentive programs include small business deduction (SBD) which reduces the applicable tax rate for the company and the R&D tax credits and cash refunds which could ease the financial burdens on GCO in technology developments.
Economic Environment: Based on the statistics provided, the Canadian retail grocery industry has been growing continuously. This growth in the market and demands benefited GCO through increasing business opportunities. In the recent years, the macro-economic environment has been suffering from recessions. As a result of that, people attempt to cut spending to save money by actions such as dine out less, drive less and reducing shopping frequency. This has led to further increase demand in the food retail industry and online food retail companies like GCO enjoys from people's attempt to save gas money. Although the economic downturn has benefited online food retail industry in some ways, there is still potential negative effects to the online business in the subsequent years if the recession continues.
Social-Cultural Environment: Online grocery have been slow in North America primarily due to the fear of unable to exam the quality of foods before hand and the delivered foods do not meet their expectation; however, if customers' doubt may be comforted through continuous commitments to provide high level quality products, the convenience of online ordering will be recognized by the public. Industry Analysis/External Analysis/Competitors Analysis
Barriers to Entry: Barriers to enter is quite high in the retail grocery industry. This is primarily caused by the indifferent characteristics of the foods which may not be differentiated through proprietary competences of the existing companies. As the existing players may not develop unique brand images, customers have rather low switching costs and therefore are more willingly to tryout different vendors. The only entry barrier the new companies may experience is the cost advantages enjoyed by the existing companies as they have already established a comparatively larger customer base and may therefore lower their cost of goods sold through vast quantity purchasing. However, not even this vary barrier to the new companies may last forever, as the new companies gradually developed their customer base, they may start ordering huge quantity supplies from their supplier and hence lower their per unit cost. "
Supplier Power: Unlike other grocery retail store, GCO does not acquire its inventories directly from the farmers or other intermediates. Instead, it purchases its products from the local contracted food retail store. Also, as GCO operates in a virtual way that it is not required to establish a huge inventory level to fill its shelf like regular brick-and-mortar stores, GCO's demand may be satisfied by any regular sized local food store....
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