Tesco vs. Webvan: Grocery Companies Leveraging the Internet

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1.0 Introduction

The grocery industry is a huge, fragmented and enormously competitive environment and there are currently several examples of grocery companies that are making effective use of the internet as a link with customers (Delaney-Klinger, 2003). In particular, Tesco currently have internet channels for selling groceries that are profitable (Hall, 2001; Koller, 2001).

During the late 1990’s many new companies were set up to utilise the perceived advantages from using the internet in business, however, with their rapid rise and fall they soon created a phenomenon known as the ‘dot.com’ era (Lovelock, 2001). Questions were then raised about the added value that the internet brought to business and how these technologies could be used competitively. Grocery companies chose to diversify their service by introducing online equivalents of conventional stores. Porter (2001, p.62) criticised numerous pioneers of Internet business for infringement of fundamental strategic principles:

“Gaining competitive advantage does not require a radically new approach to business; it requires building on the proven principles of effective strategy”

The most successful example of an internet business that built its strategy on a previous effective one is Tesco’s online service. However, some companies, such as Webvan fell into the category that Porter (2002) criticises and failed in the online grocery sector.

2.0 Tesco.com

The retail giant, Tesco has cornered 30 percent of the UK grocery market, a figure which is approximately double the collective share of nearest competitors Asda and Sainsbury’s. Overseas sales are growing even faster (Emerald, 2008). Tesco.com views internet ordering of groceries as “an additional sales channel” (Delaney-Klinger, 2003) recognising that this service will never surpass that of grocery store shopping. With this in mind, one of Tesco’s strategies was to market groceries online as a convenience and not as a lower cost...
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