Grocery Store e-Commerce
Grocery stores have made use of e-commerce since the early days of the Internet. While online-only grocery stores quickly proved to be a dismal failure as a whole, there remained some elements of that idea that have been adopted — or could be adopted — by conventional grocery retailers (Tedeschi, 2002). The failure of the online-only grocery retailers is that they made massive investments in startup costs, including warehouses and distribution networks, only to find that they could not generate enough income to pay for those investments (Ibid). Conventional grocery stores, however, have been able to offering some online shopping precisely because they did not need to make those investments. The online component was simply an adjunct to the existing bricks-and-mortar business.
Kornum and Bjerre (2005) point out that online stores need to have the same streamlined, efficient warehousing and distribution networks as their offline counterparts. Companies that already have most of these systems built in will invariably perform better in the space that those that need to build such systems from scratch. They note that for the most part the answer lies in consumer behavior — consumers are unwilling to eschew in-person grocery shopping in the kind of numbers that would make an e-commerce grocery business truly viable. Consumers not only prefer to see their food, they like the in-store shopping experience. In addition, they do not want to pay a delivery fee, and if building in the cost of delivery means raising prices, then online grocery shopping becomes inherently cost ineffective.
Overcoming these challenges is significant. E-commerce operations management relies on centralized warehouses as the point at which the goods are distributed to the consumer. Grocery stores are decentralized, appearing in every neighborhood. Groceries are perishable goods, so while the store can actively manage the condition in which the customer receives the goods, the online grocer has a challenge to do so — eggs break, milk spoils and other groceries can arrive in rough condition as well. The problem becomes worse the further the warehouse is from the consumer. In addition, the cost of servicing far away consumers is greater. At a grocery store, the consumer bears the cost and risk associated with transportation while the e-commerce grocery store bears the risk in its business model.
The critical success factors, therefore, are to minimize the downside risks associated with shipping and perishability, to provide a shopping experience as pleasurable as a modern grocery store, and to keep costs down to a point where the e-commerce store can be competitive with the bricks-and-mortar store. In 2001 before the concept was demonstrated as non-viable, Punaviki (2001) outlined that managing the cost structure of the e-commerce operation was critical to success, because it would compete against efficient store operations and would invariably be subject to more costs of doing business.
The PERT/CRM framework (no author, 2003) has two pathways. The first (two) pathway(s) are at the back end, charting the inbound logistics of the operation to bring the groceries to the warehouse and the orders to the warehouse. From there, the second pathway brings the groceries to the customer. Much of the difference between e-commerce grocery retailing and conventional grocery stores lies in the second pathway. The costs and risks associated with this pathway are significantly higher in the e-commerce model. Therefore, firms wishing to engage this model need to find ways to have lower costs on the first pathway so that their service offering can remain cost-competitive with conventional grocery stores.
Kornum, N. & Bjerre, M. (2005). Grocery e-commerce: Consumer behaviour and business strategies. Cheltenham, UK: Edward Edgar Publishing.
No author. (2003). PERT/CRM for project scheduling and management. Intervention Pvt Ltd. Retrieved October 7, 2011 from http://www.interventions.org/pertcpm.html
Punaviki, M. & Saranen, J. (2001). Identifying the success factors in e-grocery home delivery. International Journal of Retail & Distribution Management. Vol. 29 (4) 156-163.
Tedeschi, B. (2002). E-Commerce report: The history of online grocery shopping: First as web farce, now a lucrative field for older companies. New York Times. Retrieved October 7, 2011 from http://www.nytimes.com/2002/05/06/business/e-commerce-report-history-online-grocery-shopping-first-web-farce-now-lucrative.html?pagewanted=all&src=pm