Download The way to profitable Internet grocery retailing

The way to profitable Internet grocery
retailing – six lessons learned
The Authors
Kari Tanskanen, Kari Tanskanen is a Professor at the Department of Industrial
Management, Helsinki University of Technology, Helsinki, Finland
Hannu Yrjölä, Hannu Yrjölä is a Researcher at the Department of Industrial
Management, Helsinki University of Technology, Helsinki, Finland
Jan Holmström, Jan Holmström is a Senior Research Fellow at the Department of
Industrial Management, Helsinki University of Technology, Helsinki, Finland.
Abstract
The launch of a wave of Internet grocery retailers over the last five years was a
serious attempt to challenge the dominant supermarket business model. However,
after a string of business failures, it is evident that the task of selling groceries on the
Internet and delivering to the home of the consumer is more difficult than was
anticipated. Six important lessons can be drawn, based on direct consumer
experiences, from a pilot in the Helsinki area of Finland and the in-depth modelling
and study of different logistics solution models from around the world. This paper
discusses these lessons in detail.
Article Type:
Research Paper
Keyword(s):
Internet; Grocery; Logistics; Supply chain.
Journal:
International Journal of Retail & Distribution Management
Volume:
30
Number:
4
Year:
2002
pp:
169-178
Copyright ©
MCB UP Ltd
ISSN:
0959-0552
Introduction
During the last five years we have seen the rise and fall of first-wave Internet grocery
retailers. Most of the attention has been paid to the aggressive dot.com e-groceries
that challenged the old players, mainly in the USA. These companies (for example,
Webvan, Streamline, Homegrocer and Shoplink) invested hundreds of millions of
dollars in building a grocery business from scratch but were never even near to
breaking even before they ran out of money. They have all quite recently run out of
money and been forced to cease their operations. The old brick-and-mortar retailers
have taken over the best parts of their former challengers’ businesses and are
continuing the development of the e-grocery business by integrating new concepts
with the conventional grocery business. Examples in the USA are Ahold with Peapod
and Safeway with GroceryWorks. This is starting the second wave of Internet grocery
retailing in the USA, which combines the strengths of traditional retailing and
electronic grocery shopping (see Table I for details of the major existing and former
e-grocers).
In Europe there have been very few dot.com e-groceries and none of them has
seriously challenged conventional supermarket chains. Brick-and-mortar retail chains
have dominated the development of electronic grocery shopping in Europe. The fear
of cannibalising current business and a history of high investments in brick-andmortar facilities has also slowed down development. Nevertheless, electronic grocery
shopping has grown in many parts of Europe. Its development and the solutions it has
offered have, however, been different in different parts of Europe.
The growth has been fastest in the UK, where Tesco industrialised the process of
picking from the store and spread this concept quickly so as to cover 90 percent of the
population in the UK. In France, all of the major e-grocers (Telemarket, Houra,
AuchanDirect, and Ooshop) have dedicated distribution centres (DCs) for Internet
customers. However, e-grocery markets in France are still very small. In The
Netherlands Albert Heijn (AH), part of Ahold, is the furthest advanced e-grocery. In
recent years they have served their customers from both shops and distribution centres,
depending on location. In August 2001, they announced that they would stop home
deliveries from supermarkets. They have just built two new distribution centres and
will build at least one new DC to serve online customers next year. In Scandinavia,
the development has been fastest in Sweden, where about 50 “physical” stores offer e-
services, with a market share of about two percent. Electronic grocery shopping in
Sweden started early, but its development has recently slowed down.
Why did the dot.com e-grocers in the USA fail? Has the market potential of e-grocery
been overestimated, as, for example, Ring and Tigert (2001), argue? Or have the egrocers so far offered the wrong solution to the right problem? Is there a way to do
profitable e-grocery business? This paper will discuss these issues in the light of the
results of a three-year, 1,5 million Euro’s Supply Chain Management for Electronic
Commerce – ECOMLOG[1] research program of Helsinki University of Technology.
Finally, we will present our prediction of when and how the e-grocery business will
grow – and what the likely consequences are for traditional grocery retailing.
What is the problem?
A survey was recently carried out among 243 US consumers who currently buy their
groceries online, asking their reasons for buying online (Morganosky and Cude, 2000).
Over 70 percent of the respondents reported convenience and saving time as their
primary reason for buying groceries online. The other reasons mentioned were
physical constraints, hatred of grocery shopping or grocery stores, buying for business,
an inability to avoid impulse buying, and the fact that the respondents do not like
standing in line.
Time saving as a primary reason for using e-grocery is well understood when we take
a look at the time spent on traditional grocery shopping. According to studies
conducted in Finland (LTT, 1995, 1997), households visit shops on average 4.6 times
a week, spending on average 48 minutes on weekdays and 58 minutes at weekends. A
total of 57 percent of the time is spent in cars and the rest in shops selecting and
paying for the goods. This is approximately 200 hours per year, which means that
households spend on average five full 40-hour working weeks annually doing their
grocery shopping! In the case of combined trips the time spent on other shopping was
eliminated, so the result is the actual extra time required for shopping for groceries.
This leads us to the conclusion that current supermarket profits are based on the
exploitation of working hours and transportation carried out by the customer. Or, to
put it more positively: it is based on self-service. Figure 1 illustrates the current
grocery supply network structure. The last arrow depicts self-service by consumers.
The challenge of the e-grocery business is to turn that last arrow the other way around
and deliver the goods effectively to their point of consumption.
Is self-service a problem? Do people value the time they spend on grocery shopping?
Strong opinions have been presented for and against, but there have been no serious
studies. The problem of self-service is most evident for some special groups; for
example, disabled people and people not owning a car. Also busy double-income
families are generally considered a potential user of e-grocery services. These people,
however, are only a small part of the total population. This group cannot provide
markets that are big enough for profitable e-grocery. The critical question is therefore
if e-grocery offers sufficient value that all or most types of consumers could be
considered as potential customers. This, in turn, depends on both the quality of the
service that the e-grocery offers and on the customers’ valuation of their spare time.
The willingness of consumers to value time-saving can only be speculated about, as
long as a credible alternative to self-service is not available. It is, however, obvious
that the outcome is not likely to be a clear black-and-white picture. There are people
who like all types of shopping and there are people who dislike all shopping, and most
people are somewhere between these extremes. Regardless of how much one likes or
dislikes shopping, there are often other things to do: work, rest, play and
entertainment, for example. Past experience has also shown that households are
willing to invest in products that save their spare time, such as washing machines,
dishwashers and microwave ovens. However, the problem in e-grocery today is that it
takes some time to learn new buying routines before the time-saving element is fully
appreciated. Therefore, even moderate charges for the service may slow down to a
remarkable extent the willingness of customers to shift from traditional shopping to eshopping.
The electronic copy of a supermarket did not work
E-grocery services have so far been electronic copies of the old supermarkets. The
only service that most of them have provided is selection and home delivery of the
goods ordered. From the customer’s point of view they are still self-service in many
respects: the ordering process on the Internet is often time-consuming and has to be
repeated each time to get the goods delivered. Then the customer has to wait at home
to receive the delivery. Only in a few cases (Streamline, S-group) has the e-grocer
offered a reception box that enables unattended reception of the goods to take place.
An e-grocery business model could also make it possible for consumers to be offered
new kinds of value-added services that are very difficult for shops in a physical store
to offer the consumer. With a new kind of value-added services, e-grocers would be
better able to fulfil the needs of different customer segments. An example of such a
service was Streamline’s “don’t run out”. In this service the e-grocer automatically
replenishes the consumer’s inventory of continuously-needed items. Such a service
requires regular orders and is greatly facilitated by unattended reception. The service
offered by Streamline was the most advanced of any e-grocer so far, but was still not
able to gain market share quickly enough to cover the investments made in both
expensive facilities and service development.
Webvan, financially the strongest pure-play dot.com challenger of grocers, ignored
the opportunities to provide new value-added services in e-grocery. Instead, the
company invested heavily in highly-automated distribution centres, with the objective
of reaching operational efficiency quickly. Webvan never reached enough business
volume and customer density to break even before they ran out of money. Still,
because of their service concept – ordering-based service, attended reception, short
delivery windows and not focusing on building customer loyalty – they would
probably have had difficulties in breaking even at any customer density. The value of
the service offered was quite low to the customer. It also caused high operational
costs: transportation could not be optimised and the unevenly-arriving nature of
orders would not allow for a high utilisation rate of the automated distribution centre.
An electronic copy of a supermarket did not work for Webvan. Recognising new
opportunities to offer has also been difficult for European e-grocers. Because Internet
sales have been a marginal business for the supermarkets, and because profitability
has been difficult to reach, investments in developing service innovations have been
small. Companies tend just to follow what their competitors are doing and none of
them is willing to take risks by investing in developing services that the others can
copy if they turn out to be successful. Therefore, European e-grocers too have adopted
the easiest solution: copy the supermarket model onto the Internet.
What is the real customer need?
If the electronic copy of the supermarket does not work, what would be an alternative
approach? In order to find that out, let us take the customer viewpoint on grocery
shopping. To find out real customer needs we should be able to understand what the
needs are that are actually created by what the current supermarket service offers. We
argue that there are three common beliefs (often based on consumer surveys) about
customer needs that should be questioned:
1. (1) Customers need to get all the items they have purchased instantly.
2. (2) Customers need a wide assortment from which to choose each time
purchases are made.
3. (3) Customers want to choose fresh goods themselves.
The customer is used to getting everything instantly by going to the store, but how
often are the products used immediately? Usually only some continuously-used
products that are out of stock in the consumer’s home are used immediately. These
are typically items such as milk and bread. Providing an express service for small
orders of such items for occasional customers is the surest way to ruin the profitability
of an e-grocer. Instead of an occasional express service the e-grocery should focus on
customer demands that can be fulfilled effectively and that correspond to the bulk of
consumers’ purchases. Fulfilling instant needs will be good business for physical
retail outlets, in the future as well as now, but the stores can, on average, be much
smaller than today’s large supermarkets. All other demand could in principle be
fulfilled by efficient e-grocery systems.
The continuous need for a wide assortment is also, at least partly, a misunderstanding.
According to studies made by the e-tailer GroceryWorks consumers typically buy
repetitively the same goods each time they make grocery purchases. Approximately
200 items count for over 90 percent of a typical consumer’s continuous needs. These
200 items are, of course, different for different consumers, and this explains why
physical supermarkets need a wide assortment so as to serve the mass market. But
from the individual consumer’s perspective, the basic idea is that only very few
choices are made in a supermarket that may have tens of thousands of items in its
range of products. In grocery shopping, most of the consumer’s purchasing is routine
work that is repeated over and over again, several times a week, from week to week,
the whole year around. The routine purchases that evidently account for most of the
average consumer’s groceries can effectively be shifted to an e-grocery service. This
would enable the consumer to focus on those purchases where he or she wants to
make real choices and that bring positive feelings.
One common argument against e-grocery service is that consumers want to be able to
touch and select the fresh goods that they buy. However, touching and selecting; for
example, tomatoes in the supermarket, is not an actual need of the customer. The
customer just wants to be sure that the quality of the tomatoes that he or she receives
is high enough. In e-grocery this is just a question of trust. If the e-grocery is able to
reliably provide customers with high-quality fresh goods, the consumer starts to trust
the service provider and is no more interested in selecting the tomatoes while grocery
shopping than in a restaurant. In many cases, e-grocers have even better opportunities
to offer high-quality fresh goods than supermarkets. A former e-grocer, Homegrocer
(CIES, 2000), conducted a study of tomato buying. It showed that in a supermarket
supply chain each tomato is touched on average 11 times before it ends up in the
home of the final customer, primarily because of the various stages in the supply
chain and finally because of the people who want to squeeze tomatoes before buying
them. With e-grocery, tomatoes are touched only three times before the final customer
receives them.
A blueprint for profitable e-grocery business
What does a grocery retailer need to do to set up a profitable e-grocery channel? Next,
we will present six actions that together outline a blueprint for setting up a successful
e-grocery operation:
1. (1) Focus on customer density and build operating systems locally – copy and
paste the working system to make it big.
2. (2) E-grocery is loyalty business – build and maintain trust.
3. (3) The buying power should be at least as strong as supermarkets have.
4. (4) Take care of operational efficiency and provide a high service level –
utilise reception boxes and start with a store-based service – switch to a hybrid
model and build dedicated fulfilment centres when local business volumes
justify it.
5. (5) A good ordering interface and availability of product information are basic
requirements – eDemand and eCategory management are powerful new
opportunities.
6. (6) Enlarge the range of products offered to high margin non-grocery items
when an effective logistics system to households is built and there is a base of
loyal customers.
Customer density
One of the misconceptions about e-tailing has been that the Internet makes all
businesses global or at least enables sales to large geographic areas. In e-grocery the
reality is quite the contrary: the effectiveness of operations depends critically on local
customer density. An empirical analysis made at the Helsinki University of
Technology with a sample of real purchasing data (Yrjölä, 2001) suggests that the
critical factor in reaching a profitable e-grocery business is sales per geographical area.
According to these analyses, to reach the break-even point in Finnish markets, an egrocer’s annual sales per square kilometre should exceed 170,000 Euros. These
calculations are based on picking the orders from a dedicated order fulfilment centre
with a low level of automation. The cost of home delivery has been estimated by
modelling home delivery with different service models with real grocery shopping
data. From a logistical viewpoint the home delivery grocery business is quite similar
to the garbage collection business: the markets should be taken over street by street.
After an effective system for operating locally is developed, the way to make the
business big is just to copy the concept to new local areas.
Loyalty
The cost of acquiring a new e-grocery customer is high, especially in relation to the
low margins of the grocery business. Estimates of acquisition costs vary from $50
(Sherman, 2000) to $200 and up. For example Webvan spent $133 on marketing and
administration for every single shopping basket purchased from the company during
its lifetime (Business Week, 2001). When this is compared to the typical gross margin
of a grocery purchase, that is, around $10 (Sherman, 2000), it is clear that occasional
customers can never be profitable.
Achieving customer loyalty requires the systematic building and maintaining of trust.
In practice, this means putting high-quality and fast customer response in first place.
The e-grocer is different from the supermarket in many critical ways. The most
important is, however, that what you see is not always what you get. For fresh
products and other items that are not uniform in quality it is the e-grocer that makes
the final selection. For frozen foods the e-grocer takes responsibility for the food
staying frozen. And also, in e-grocery, the consumer cannot easily substitute a product
that is out of stock with one that is available when there is an error in the inventory
record. The point is that without self-service picking and home delivery there are
many situations where consumer preferences need to be identified and acknowledged
and where quality easily suffers from poor organisation. To be competitive, the egrocer must win the trust of the customer and bridge the gap between what the
customer sees and what he or she gets.
Customer loyalty is also the cornerstone of effective logistics. The logistical costs of
serving occasional customers’ momentary needs are substantially higher than those of
serving the continuous needs of permanent customers. No other products are
purchased as continuously and as frequently as groceries. Even though most e-grocery
users will also use multiple channels for grocery purchasing, the e-grocer should
always aim to supply the majority of each of their customers’ purchases. Selling 500
Euros’ worth per month to one household is much more profitable than selling 50
Euros’ worth per month to ten households. In a supermarket there is not such a
difference.
Buying power
Starting a business from scratch is difficult and in grocery retailing it is even more
difficult, because the merchandise comes from so many different suppliers, all having
long-standing relations with established businesses. The customers of an e-grocer are
not willing to pay more for their groceries than in the average supermarket. They
might be willing to pay something for home delivery but definitely not more than is
needed to cover costs. To be able to offer competitive prices the purchase prices
should be at the same level as those offered by the competition. This means that
starting from scratch will require a lot of capital, because the higher purchase prices at
start-up volumes have to be subsidised. Only when the sales volume grows does the
buying power grow. This clearly gives a huge advantage for established grocery
retailers in comparison to the pure play start-ups when starting e-grocery as a
complementary channel. Acquiring a traditional grocery retailer and expanding the
business by developing a new e-channel is one way to break this barrier to entry.
Operational efficiency and service level
The cost of home delivery does not depend only on the density of drops. The service
model, the way the delivery is received and the picking system also have a substantial
effect on the cost structure. The most expensive service model among the ones
generally used is attended delivery on the following day in one-hour delivery
windows. The least expensive service model, unattended weekly delivery on a defined
weekday, will reduce home delivery costs to less than a half (Punakivi and Saranen,
2001). The key to efficient home delivery is the unattended reception of goods. This
can be achieved with a refrigerated reception box at the customer’s location or a
delivery box. The delivery box is an insulated box that can be locked near the door of
the customer’s home and keeps the merchandise cool or frozen until the customer
comes home.
The most efficient unattended delivery, however, can be achieved with shared
reception box clusters. This is similar to garbage collection from a block of flats or an
office building. One box is allocated to one delivery for a certain day. When the
customer collects the order the box will report itself empty and can be used for the
next customer’s delivery. The clusters can be located in an office building car park,
where people can load their groceries into the car when leaving for home. Another
option is to place the clusters in dense residential areas where a sufficient amount of
households have access to the boxes, making the utilisation rate high enough to justify
the investment by lower transportation costs.
Our research has analysed the cost of picking from a simple distribution centre
compared to picking from an existing store (Yrjölä, 2001) and the implications of
investments in picking efficiency (Kämäräinen et al., 2001). The findings suggest that,
in early phases, picking from an existing store is clearly the least expensive alternative.
When the sales volume grows, picking from a dedicated centre becomes less
expensive. This will happen when e-grocery sales volumes reach between Eur. 2
million and Eur. 5 million per annum. The cost of picking at this volume becomes less
than 17 percent of the value of the goods, which has been estimated to be the cost of
picking from a store. In volumes exceeding Eur. 10 million the cost of order assembly
at a dedicated fulfilment centre approaches 10 percent of the goods value and in
positive scenarios is well below it. This will enable profitable overall operation,
supposing that the home delivery drop density is reasonably high.
The required productivity can be achieved without substantial investments in
automation. The profitability of heavy investments in automation in picking requires
not only large volumes of orders, but also that capacity utilisation is high.
High capacity utilisation is difficult, because of demand fluctuation between different
days of the week. One operational option between picking from a store and a
dedicated fulfilment centre is a hybrid model. This is a combination of a traditional
store and a fulfilment centre. In this model, goods from selected product groups are
delivered to the fulfilment centre on the basis of consolidation of confirmed customer
orders. Thus, incoming goods can be sorted to customer orders without ever visiting
the store’s shelves. This reduces work and costs.
Ordering interface and product information
The self-service supermarket did not take off before the manufacturers of grocery
products started packaging their bread, milk, cereal and washing detergents for easy
identification and handling by the consumer. To build the supermarket and put in the
shelves was not enough. Change in the store’s structure also needed change in the
packaging of the products to be put on the shelves.
The situation in e-grocery is today comparable to having built a supermarket, but
having no packaged products for the shelves. The basics for easy identification and
handling on the Web still need to be put in place by product manufacturers. The
requirement is for both easy product display and easy selection. Suppliers need to
provide “pre-packaged” electronic product information that can be used directly by
the e-grocer or be linked to the e-grocery site over the Web.
However, it is not enough to display the product. The customer must also be able to
select it easily. One popular solution is the standard shopping basket, where only
frequently purchased items appear. For the manufacturer this means there is also a
need to develop easy-to-use links between product information and ordering. For
example, suppliers may need to provide a way to replace a product in a customer’s
standard shopping basket when a product replacing a previous one is introduced. Also,
suppliers need to develop new types of activating reminder – in other words,
commercials – that help the customer change the selection him- or herself when an
interesting new product is being introduced on the market.
The supermarket and e-grocery services are not substitutes but complements. This is
because you can use Web-based information technology to provide service offerings
that the supermarket cannot provide on a cost-efficient basis. The simplest example is
in category management. In a supermarket there are only a limited number of ways to
present the products to the consumer. Using information technology, every customer
can have their grocery offer tailored exactly to his or her needs – taking into
consideration occasions, personal budget constraints, dietary preferences, medical
treatments and even possible food allergies.
But you do not have to restrict development only to product display. Using
information technology, a product can be purchased in many different ways by the
consumer, depending on the situation and the customer’s other daily activities. The egrocer can also make offers in a range of different situations outside the actual Webstore. For example, a consumer with a standard shopping basket could add a new
product to the basket in many different ways. If the consumer has a bar-code scanner
attached to his mobile phone, a new product may be selected by scanning the product
package and adding it to the standard shopping basket using a short message (SMS).
This could also be achieved without the scanner by just recording the product code
from the package or an advertisement.
Another opportunity is for the e-grocer to integrate with the activity planning of the
consumer. For example, based on the occasion and number of people attending a
party, the e-grocer can propose a menu and create a shopping list based on the menu.
Web-based personal calendars and organisers may provide a practical basis for the
service. Information service providers, such as Microsoft, have already started to look
for new ways to make personal applications and passports central in simple e-business
transactions. The step from transaction support to planning is short once the basis –
the personal application – is in place.
Enlarging the range of products
E-grocery home delivery can help in building a new delivery network from suppliers
of tangible products to households. In this network, adding a new product group into
the selection is like adding a new TV channel for a cable TV subscriber. This
distribution system could potentially deliver even purely local products or seasonal
products that are not available in today’s stores. The home delivery network would
become a critical part of community infrastructure (like water mains, electricity
supply and garbage collection). When home delivery has reached a critical volume of
business and density of drops it will also be economical to include mail delivery and
smaller local distribution tasks from other freight carriers.
These lessons can be summed up in three main considerations. First, in e-grocery
retailing it is critical to link logistics strategy and marketing strategy. Marketing and
logistics should be planned hand-in-hand in all phases of development. Second,
profitable e-grocery is not just copying the old supermarket onto the Internet.
Competitiveness is created by leveraging the real power of the Internet and the home
delivery model in developing new value-adding services for customers. Third, egrocery should be seen as a means to develop unique relationships with consumers. A
company that has integrated consumers to its information systems and brings daily
groceries to his or her doorstep has powerful tools for developing new businesses.
When will e-grocery work on a large scale?
After the collapse of the first wave dot.com Internet grocery retailers there have been
many comments about their mission being impossible in the first place. Most likely
this is true. The way these companies tried to beat traditional grocery retailing was
simply fighting too many wars at the same time. To gain buying power when dealing
with suppliers, a large sales volume was needed. To get a large sales volume you
needed a lot of new customers. To get a lot of new customers you needed attractive
prices and to be able to offer an attractive range of services. And, most importantly,
you had to make a profit before you ran out of money. Maybe the toughest part in this
fight was the need to change consumer behaviour. The change is possible if the value
offered is good enough, but it simply takes too much time for a challenger to succeed.
When we look at today’s grocery market, after the pure play e-grocers have either
collapsed or been taken over by “brick-and-mortar” grocery chains, there are two
strong global alliances. Tesco and Safeway, as co-owners of GroceryWorks, will gain
market share with their store-based picking model developed in the UK. The other
strong player globally is Ahold, with Peapod. These companies have buying power,
existing customers and sufficient funds to develop a profitable business out of egrocery.
Tesco claims that its e-grocery is already profitable now and that 50 percent of the
business comes from new customers. If the e-business is seen as purely incremental
and all investments and general running costs of stores are allocated to the traditional
business, a store-based model can be very profitable. Tesco allocates 12 percent of the
value of the shopping basket as “other store costs” to the e-grocery orders and
achieves 5 percent net profit per order with a 6 percent delivery fee (Business Week,
2001). Tesco claims that the distribution of cost between e-grocery and conventional
shopping is not favoring the new channel. However, when the business volume grows
it will eventually start cannibalising the traditional business and affect its profitability.
This is the point in time when the new channel needs its own supply chain solutions
and dedicated picking solutions, so as to gain better operational efficiency.
The supermarket profitability equation is based on low operational costs in relation to
sales volume. If the sales volume of the supermarket grows, the profit will also grow,
because there is very little incremental cost as the customers do most of the work.
Unfortunately, this also works the other way round. If sales volumes decrease, there
are only limited opportunities to cut costs. This is why most supermarkets cannot
loose more than 10 percent to 15 percent of their sales without going into the red.
In our opinion, this leads to a development where a substantial proportion of larger
supermarkets will gradually be closed in order to save costs and their business will be
taken over by the e-grocery channel. The development will not be very fast in the next
few years. This is because all the elements of the new services are still
underdeveloped. The user interface, especially the ordering process and service
models that make ordering unnecessary, are still a few years away. Unattended
reception capability and delivery density will grow hand-in-hand, but very slowly.
Unattended delivery solutions decrease home delivery costs substantially and it can be
anticipated that, for e-grocery to succeed, the capability for unattended reception will
increasingly have to be built in in new houses, office buildings and even houses in the
city area. The development process has started with separate reception boxes, but to
solve the problem on a large scale we will also need intelligent goods lifts as an
integral part of larger buildings. This will also help in deliveries between companies.
These changes will take time and the financial justification for the necessary
investment will not be there before there are delivery services available.
Market share growth is going to be slow up to around 2010, ending up between 5
percent and 10 percent. After 2010 there will be a period of faster growth, due to the
fact that all parts of the service will have improved considerably and also that time
has replaced a quarter of today’s consumers with youngsters brought up with personal
computers. It is hard to predict what the “final” market share of e-grocery will be,
because the market will look completely different when the change reaches saturation.
The smaller stores near where people live and grocery shops in connection with petrol
stations are likely to remain competitive. They also offer an easy way to get groceries
that are instantly needed. Even the larger supermarket in shopping centres can survive
by changing the emphasis from “large and bulky” to “small and enjoyable” shopping.
All the indications are that people will have more spare time in the future and they
will spend it on, among other things, shopping. We believe they are going to do it for
their enjoyment – not to be a voluntary and unpaid labour force for the grocery supply
chain.
Note
1. Supply chain management for electronic commerce (ECOMLOG) is a threeyear (1999-2002) research program that focuses on finding new solutions for
the last mile problem in electronic grocery shopping and on developing
methods for collaborative planning leveraging e-business capabilities. The
detailed results from the program have been reported in several journal articles:
International Journal of Retail & Distribution Management, International
Journal of Physical Distribution and Logistics Management, International
Journal of Logistics Management, Supply Chain Management: an
International Journal. Detailed information about ECOMLOG program can
be found at www.tuta.hut.fi/ecomlog
Table IThe major existing and former e-grocers
Figure 1Structure of the traditional grocery supply network
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