Impact of Online Grocery Sales to the Retail Sector

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Grocery shopping has been regarded as stressful and as a chore (Aylott and Mitchell, 1998). This fact suggests that it would be reasonable to expect consumers to eagerly embrace the convenience brought by online grocery retailing. Surprisingly, however, the uptake of online grocery services has been slower than anticipated. In the UK, online consumer expenditure accounted for only 0.4% of the whole £95 billion UK grocery market (Peppers and Rogers, 2001). Even for Tesco, the most successful online grocery retailer, the internet division represents only less than 2% of its total group sales (Rigby, 2005). So why is this the case? This report will seek to evaluate the impact of online sales within the grocery sector, using examples of both successful and unsuccessful supermarkets to support the conclusions made. It will analyse the different fulfilment models of online supermarkets, the adoption models they can use, the barriers they face, the impact on employees, the advantages and disadvantages of adopting e-commerce, the change in supermarkets relationships with their customers and suppliers and finally, the industry wide effects on competition. It will then present some management recommendations, outlining what decisions a store needs to make when deciding whether to extend their business plan to cover electronic commerce.

1.1 Fulfilment models
A key element of online supermarkets is how fulfilment is handled. There are 3 models available (Boyer et al, 2003).: 1.‘In-store picking’. This involves using stores owned by the online supermarket itself or its partner(s). 2.Serve the online supermarkets customers by building a dedicated picking centre. A company can serve a wider area and reduce the cost of picking, but this requires a significant upfront investment. 3.Hybrid model. This is an operational option between in-store picking and a dedicated fulfilment centre (Yrjola, H, 2001) which is created by incorporating local distribution centres into the traditional grocery supply chains. It requires the redesign of the supply chain for various product groups. The overall supply chain costs can be reduced by bypassing some stages for the picking for online customers (Tariskanen et al, 2002) The problem of home delivery represents a major challenge for any B2C e-commerce (Punakivi and Saranen, 2001) . An important aspect is the delivery time window offered to customers.

Tesco, the largest home delivery grocer in the world, has store proximity to 96% of the UK’s population (Boyer et al., 2004). Employees use special carts called ‘picking trolleys’ mounted with screen guides and ‘shelf identifier’ software constructing them to where to pick the items in a list (Scott et al., 2006; Hays et al., 2004; Hoyt 2001). After a study undertaken by Feng and Yousept in 2004, where they interviewed senior managers of two global supermarket retailers, they found out that there has been a noticeable change towards ‘Martini’ Style Shopping: Anytime, Anywhere and Anyhow. The business scope of most supermarkets has been expanding rapidly, often in goods/services that have never been thought of previously, such as utilities, telecoms, financial services and even travel. Supermarkets are utilising their online arms to create a new bundle of products/services to offer life-style solutions. This is referred to as ‘grocerification’, convenience with a high value for money (Feng and Yousept, 2004).This in turn makes it possible for supermarkets to provide a personal service to different customers.

1.2 Adoption models
Feng and Yousept (2004) have also identified 3 adoption models of online supermarkets: 1.Virtual pure plays. These are non-supermarkets that come to the online supermarket arena with an online-only offering e.g. TheFoodFerry 2.Baby e-supermarkets. Those online-only subsidiaries of existing supermarkets with their own brand name; the parent supermarket can continue to operate in...
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