Strategic and Economic Analysis of E-Grocery System in Tesco and Sainsbury
Online shopping and home delivery systems become most famous in recent decades. Online grocers have been testing various business models with altering results. This research study is carried out in two main grocers of the UK (Tesco and Sainsbury). This research study conducted Case study and historical data, and meta-analysis to identify current strategies and business models of e-grocery which contributed to their success. Both companies’ management styles, expansions strategy, market selections strategy, order-processing and picking methods, home delivery methods, website design and different strategies for customer relationship management are explored and evidenced the successful factors. The findings reveal that online grocery knowledge and experience in grocery business play a significant role in E-grocery success. Using slow and steady expansion with careful investment helps online grocers to stay in game. The In-store picking method is more profitable and suitable for e-grocery business. Understanding customers, wants and needs will provide tremendous opportunity for business expansion.
1.1. INTRODUCTION: –
This chapter provides general background, problem statement, purpose of study, research objectives, major research questions and structure of dissertation.
1.2. General background:-
From many decades many groceries and also many manufacturing companies are providing delivery services to customers. Home delivery of household goods is not a recent concept in grocery retailing sector. However, until 1990s e-grocery was not potentially recognisable business channel, when grocers introduced internet based online ordering facility it revolutionised whole grocery industry (Papiernik, 2000).
Nowadays, not only pure-play industries offer e-grocery services but also many more supermarkets offering e-grocery service. E-grocery’s continuous and fast growth is capturing market share from traditional retailers. Many of grocers have tried online unit and some of them are successful and some of them have failed in the history of grocery retail sector. For example, online grocery business is judged to show sales figure. The estimation shows that, about 0.3% to 0.7% of total sales in UK and 0.2% of sales in USA. (Kumar, 2001). The e-grocery market value is estimated at â‚¬450 to â‚¬1,000 million and $900 million in United States.
1.3. Problem statement:-
On one hand, many customers are interested to do online shopping for their household goods, but yet they are not interest to abandon shopping in-store in traditional way. Most of the people still believed that, online shopping is too expensive. On the other hand, many more industries also have made their effort to build online stores by providing this extra service to the customers. Organisations are continuously striving hard to build different strategic approaches for fulfilment of orders in profitable way. However, online unit business will add extra expenditure to grocers with or without some nominal charges. The profit margin is comparably very low in e-grocery to traditional one. Many grocers have undertaken to provide online shopping experience for their customers with different strategies. Profit margin is very low and sustainability in this industry is difficult. In the history of grocery sector many more companies have introduced online shopping and home delivery units and have failed.
1.4. Purpose of the study:-
The online shopping and home delivery is still in an emergent phase. E-grocery business is very challenging field and it provides an extraordinary opportunities for business. E-groceries have made many more efforts to implement various strategies and service concepts, there is no much research carried out in this area. This research study provides insight of e-grocery methods in retail sector, identifies operating strategies and strategic and economic analysis of home delivery methods in Sainsbury and Tesco.
1.5. Research objectives and significance of the study:-
This research study will be carried out to analyse the current strategies and economic implications of e-grocery sector in Tesco and Sainsbury. The main objective of the study is to determine whether home delivery is strategic and economic contributor to company or not. The research also seeks to perform business models of the e-grocery system. The dissertation will provide the best strategic implementation method for online grocery systems in companies which will result in profit. Another objective is to determine business model for order processing. This study will focus on order picking and home delivery of the goods.
1.6. Structure of dissertation:-
The dissertation is structured into five chapters.
Chapter 1: – This chapter provides general background of online grocery shopping and home delivery system, problem statement, purpose of study, research objectives and significance of the study, and outline of dissertation structure.
Chapter 2 – This chapter provides literature background for e-grocery system. The literature describes customer base critiqued on the basis of different characteristics, online market share and trends and customer relationship management.
Chapter 3: – This chapter presents research methods used to analyse the research aim and objectives. The research is carried out with qualitative analysis. Analysis is carried out using two methods, firstly case study and historical analysis, and secondly Meta analysis. Both are used to identify strategies, models, and success and failure levels of industries.
Chapter 4: – The fourth chapter confers finding of research, analyses the data and shows the results.
Chapter 5: – The final chapter draws the conclusion for overall report and also proposes possible future research in online grocery field.
2. LITERATURE REVIEW
The literature reviews the operational and strategic analysis of E-grocery systems. There are many business models in E-grocery business. To make E-business model a sustainable one, they are using different strategies in different targeted markets. Each individual model varies from the other in various dimensions such as placing of order, assembling and delivering the goods. The first part of the literature provides statistical description of online grocery industry in various geographical areas and measures. The second part provides review of the E-grocery industry’s market and its customer base. The final part offers previous studies, opinions and factors about various outcomes of e-grocery business.
2.2. Industry overview:-
Over last five decades grocery business has transformed into new sector of supermarkets in UK. Many of the supermarkets have changed the grocery field dramatically. These champions of consumers have brought vast choices in product and price to improve their business sector. Online grocery shopping and Home delivery system has become one of major aspects in grocery industries. The revolution of technology advancement in internet has promoted grocery industries to embark on new methods in retailing industry. However, many grocers have been unsuccessful to consider the advantages of how it can support grocery business. These developments have lead to dismissal of complete-online supermarkets such as Web-Van, HomeGrocer, Shoplink and homeruns (Ramus and Nielsen, 2005). These results demonstrate the necessity of careful crafting of e-grocery strategies which exploits internet technology’s potential of increasing company profit and also customer service (porter, 2001).
On one hand, strategy conceptualisation is difficult for pure-play grocery stores since companies have not tried business models before. On the other hand, formulation of strategies for clicks and bricks grocery shops requires strategies which will combine both existing retail practice and internet based shopping processes (Teo, 2002). Online shopping or e-grocery retailing service involves customer’s online buying behaviour and practices, order fulfilment and delivery of order, development and maintenance of online websites to facilitate customers to enter their orders (Hong and Kim, 2004). This literature provides insight of into e-groceries and their strategic methods.
2.3. Development of home deliveries in the UK:-
In United Kingdom, from centuries home delivery of goods has been taking place. During 20th century some local door to door field sales and home deliveries went down due to rise large number of retail centres and also availability of cheap cars. However, some of the home delivery business still in existence such as milk and catalogue distribution etc. The innovation of large consumer products such as washing machines, dishwashers, refrigerators, televisions etc resulted in certain type of delivery methods after mid-twentieth century. (Spufford, 1994)
The recent development of information technology has contributed many new methods to retailing sector over the internet which has drastically increased the demand of home deliveries. Online shopping and home delivery has become an ideal path or approach in a society where people themselves believe they are cash-rich and time-poor for grocery or household goods. E-commerce along with some other forms offers the opportunity for consumers to buy household goods from their homes and also to receive deliveries at their flexible timings rather than travelling to stores. (ibid)
2.4. Grocery and grocery industry:-
Groceries and other food retailers function each and every day, yet it is fundamental and permanent industry sectors in the business world. Everybody requires food, thus everyone must and should purchase food from one or another retail outlet. Therefore, the grocery industry is a vast, fragmented and tremendously competitive environment (Kelly Delaney et al, 2003 pp 187).
“In Great Britain, food retailing industry constitutes 36 percent of overall retail turnover annually (Central Statistical Office, 1990). In United Kingdom the largest individual category of family expenditure and along with some other groups, which are partially sold in supermarkets, like household goods, tobacco and alcohols, clothing and leisure goods for a considerably large share of customer shopping (Central Statistical Office, 1991).” (Russell Aylott et al, 1998, Pp.363)
2.5. Customer base and market trends:-
According to Verdict (2006a), 80% of the online shoppers were of 29 to50 age group in 2002. Majority of responded shoppers were females. There are three groups of online shoppers: firstly rich and busy people who are pressed for time, secondly families with one or more young children and thirdly people who find difficulty to get into stores. The first group of people are those who have higher income and less time to shop. These people are normally high internet users, technology comprehend or family with dual income. These rich and busy people prefer someone to shop behalf of them. The second group are those who have got young children in their families. They constitute higher number of e-grocery shoppers. The age group of e-grocery shoppers is 29 to 50 years old with at least one young child under five years of age. This group of people usually spend their time in cooking dinners for their family. Therefore they prefer shop online for regular household groceries. This category of people wants to avoid hassle situation at stores by dragging kids along with them for shopping. The final group is comparably small to other two categories. This group of people are those who find difficulty to access the store environment due to several reasons like age or physical disability etc. People’s average life span has increased in recent decades comparing to 1950s and 1960s. People’s average life span has increased from 67.8 to 77.2 in 2007 and the estimated life span is 82.4 for 2015.Aged people and physically challenged people may need little more extra help while doing shopping. They may found it as difficult to drive to supermarkets and to carry heavy household goods back to home. Online shopping will be the good alternative source of grocery shopping for them.
In the year 1999 the total home shopping market worth was figured at A£12.36bn in the UK market. The projected view for 2004 was A£24.12bn. All sectors have experienced by considerable growth. Constant increase has been expected for following 5 years as customers accept different new channels for purchasing of goods. Traditional grocery shopping is a matured market. However, recent developments and growth predicts that, it has been generated by potential e-commerce and majority of grocers have converted a part of their business into e-grocers. UK e-shopping was A£581m worth in the year 1999 and estimated growth of A£1.53bn in 2000. Verdict research predicted that there will be huge growth of 3.36% of total sales in online market and it was estimated as A£8.84bn by 2004(Nielsen, 2000).
2.7. Market trends in home shopping:-
E-commerce growth in recent decades (excluding some declined cases) has transformed old traditional companies into technology implemented new companies. Moreover, now companies are in better position to exploit and implement new technologies to business models to grow their sales and profit. In the starting days of internet technology there were comments from academic commentators that most of incumbent businesses were unwilling to try internet for sales channel. There was lack of internet knowledge and also uneven distribution of amount for physical distribution. These companies distribution infrastructures have their brand names and customer base which will help them to command and access the funding, and provide stronger position to embrace e-commerce (Anderson consulting, 2000).
If we consider present situation, majority of internet user are males compare to females. This socio-economic difference in internet profile user also affects online shopping. Along with these higher proportion of society contains children and youth who currently own their own computer systems and access internet more than older generation. However, research depicts that some of these variations may diminish over the growth of technology. For example, the prediction of women internet user by the 2005 will increase by sixty percent of total UK online users. (Tesco 2000a; Tesco Annual Report, 2000).
Many more established retailers are likely to adopt a new approach, Multichannel retail sector implementation and development, in future. Already there are alternative channel development methods by many large retailers. It will also permit retailers to create alternative channels to draw supply chains and resources from their existence channels. For manufacturing companies it will provide good opportunity to access customers directly and to formulate new methods of delivering service or product. There is an expectation of launching of new niche catalogues from major drivers in UK as growth rate penetrates. (Webb, 2000).
2.8. Geographical characteristics:-
Sandoval (2002) mentioned analyst Robert Rubin said that average population density in UK is high compared to ones US. The US (31 per sq.km) population density is one-eighth of the UK (248 per sq.km) in 2004 (world population prospectus). Tesco and Sainsbury have become successful e-grocers in the UK. These grocers target highly populated urban areas for more potential consumers.
Urban areas are densely populated, people reside very close. In large cities there are less people who own cars. There are other factors which influence online grocery shopping in urban areas such as busy lifestyle, highly crowded shopping malls, public transport dependence for transportation and higher income.
According to Mclaughlin (2005) cities are highly populated with internet users and considerable residents with disposable income. It is difficult expand online shopping to system to all geographic areas instead it could be done from one urban area to another, expanding business like this will make company delivery truck to achieve high number of deliveries at every trip.
2.9. Psychographic characteristics:-
Punakivi, M., & Saranen, J. (2001) mentioned five major decision elements for online shopping (price, convenience, product variety, ambiance and service). He also stated several reasons to increase online shopping chances such as changing family structure, busy work schedule with increased working hours, less free time and time consuming traditional shopping methods. This social system transformation result in search of alternative independent grocery shopping methods. Customer with different disability made their interest towards e-shopping rather than traditional one.
Woodside, Arch G. and Randolph J. Trappey (1992) mentioned that time and conveniences are the two major factors for people to switch from traditional shopping methods to electronic shopping methods. Technology should provide complete product description to satisfy different types of customer base. It may depends on several criteria such as different food preferences such as organic, religious, ethnic origin etc
2.10. Technological characteristics:-
Punakivi, M., & Saranen, J. (2001) states that, the food marketing institute indicates US consumers are highest internet users with eighty-six percent in that seventy percent will shop online daily. Whereas in the UK, broadband user are in fifth position in world and second position in Europe. E-commerce research 2007 shows 15.9 percent respondents brought groceries once in a week, 2.7 percent shops twice or thrice a month, largest group shops once or twice in a year. Increased internet users likely contribute the growth of online shopping. Online shoppers will make more shopping than in-store shoppers.
“As the economy and society have changed, so retailers have responded and shopping as an activity has altered enormously.” (Dawson and Broadbridge, 1988). Online shopping is comparatively a recent phenomenon, which provides an opportunity to consumers to carry out at least one part of buying process online.
“Electronic grocery shopping has been defined as shopping when at least part of transaction is started electronically via third party services or the Internet, but paying and logistics are not necessarily performed digitally”. (Carl Lewis, 2003-pp.207)
E-shop business model represents one class of e-commerce where buyers and sellers interact electronically with each other, except for deliveries. Burke suggests many reasons web marketing of food. As an example, everybody has to eat, and in store shopping consumes considerable time to purchase and majority people do not like grocery shopping.
Daily household goods are difficult to move physically from one place to another. Continuous growth of e-commerce enlightens many traditional grocery retailers to use internet channel to sell their goods. The development leads to many more conventional retails to enter into e-grocery field (Boedeker.M, 1997).
2.11. E-Customer Relationship Management (E-CRM):-
2.12. Success and failure factors from previous studies:-
Friends of Earth (2005) believed that e-grocery method is the best way to promote industry’s brand image. However, Punakivi, M., & Saranen, J. (2001) and Kotler (1996) stated conversely; brand image of company will help to promote online grocery business. They also believed that industry’s business experience and its infrastructure will be added advantage for promotion. One more factor is people ability to spend money for long duration household goods.
Pachauri, Moneesha 2002 stated that competition in e-grocery retail sector remains the same until company stay in game. If any child company’s online business started down falling then parental company may not let it to happen for longer duration because they are inter-related in means of profit sharing. Without the demand, services of online business company will lead to business failure. Retention of existing customer is one of the main aspects of business. To gain customer loyalty, companies should provide reward to regular shopper. Customers can also gain loyalty points for their spending and it will convert into reward coupons or vouchers. Brick and mortar stores utilises their existing business infrastructure to click and mortar stores to save on costs.
Delaney-Klinger, Boyer, and Frohlich (2003) mentioned Tesco’s success and Webvan failure because of its marketing strategy for online business. Webvan marketed its online sales with value-added service and extra delivery charges to cope up with online ordering cost. Tesco’s pricing strategy is little higher than the Webvan and it most suitable one for lower volume sales.
Smith, Howard (2004) stated that online-only business spent heavy money for their highly automated warehouses. The operating costs for these warehouses are high and order volumes for those companies are not more than half of their capacity. High initial start up cost for online division, although pricing strategy can able to reduce cost for internal order picking and delivery methods. However, Delaney-Klinger et al (2003) believed that the expenditure for short run will increase business cost for warehouse methods and decrease for existing store picking methods comparably. High initial start-up cost will results at higher risk for any organisation. Another aspect for failure will be lack of online business management knowledge and experience. Blythman, Joanna (2005) stated that, companies are not concentrating much on customer relation management for stabilising business consistently. Traditional grocers have more advantage over online grocers in this area.
Online shopping and home delivery service is one of the critical aspects of e-grocery business. E-grocery business should have to understand the variable cost affecting structures and service concepts in order to turn online grocery business into profitable one. The different strategies were discussed. Analysing and adopting best strategy for e-grocery business is most important. This literature provides insight of e-groceries. In a service context, as with product marketing, getting and keeping customers is of utmost importance. With service, in particular, someone within the organization will interact with customers; hence they should be viewed as customer relationships not just customers. Customer relationships have to be built and a useful way of viewing these developments as a life cycle. The marketing objective will change as the customer proceeds through the cycle. Understanding service marketing is becoming increasingly important for all organizations as more firms seek to differentiate their product or services through their service offering. Interaction and customer relationship concepts are the two key areas of service marketing are said to be of even greater importance to all firms in the future.
3. RESEARCH METHODOLOGY
3.1. Research topic: – – Strategic and Economic analysis of E-grocery system in Tesco and Sainsbury (Online shopping and home delivery methods).
3.2. Background of home delivery system and its characteristics-
Home delivery is generally defined as delivering of all types of goods to customers’ homes (or any different location opted by customer – example workplace) regardless whether online or any other order forms such as traditional mailing, telephone-based ordering (phone order), internet, fax or order made in person by consumer in store premises. The study is carried out in business to customer order delivery system rather than business to business.
Home delivery system refers to all household goods delivered to consumer’s house (the destination may change such as work place on customer’s selection). Hence in online shopping and home delivery method the purchased physical household goods are carried out to customers’ destination by specialised home delivery unit or companies instead of customers themselves. There are some reasons for home deliveries like (i) may be the retail outlet itself would provide an additional service to their customers or ( ii) may be customer do not like to carry the shopped goods at that instance or the required product may be out-of-stock at that moment or (iii) due to goods weight or size ( if it became difficulty to customer to transport by themselves) or (iv) because the seller itself does not have any physical store and may be its complete operation depends on the virtual online store. Thus customer may face impossible situation to collect the goods in store by themselves. (Farahmand and Young, 1998; Nielsen, 2000)
3.3. Research aim and objectives:-
3.3.1. Aim: – To analyse the strategic and economic factors of e- grocery system in Tesco and Sainsbury.
Hypothesis: – Home delivery system is neither a profitable nor a strategic contributor to Tesco and Sainsbury.
3.3.2. Research objectives:-
The objective of this study is to find out and explain empirically the above mentioned research issue by using various research methods. Our approach is comparative in nature. The steps adopted in our study are as follows:
- (1) Identification of the industries under study;
- (2) Study of background of the industries;
- (3) Interpretation of appropriateness of strategies and methods of individual firm;
- (4) Analysis of home delivery methods’ impact on organisational performance from individual firm.
This research study is carried out to understand the factors of e-grocery success by trying to find answer to following research questions.
A˜ What are Tesco’s and Sainsbury’s online units’ strategies to its success?
A˜ What are the business models they are following? How are they processing their order? Should they use warehouse system or in-store picking system?
A˜ Whether home delivery system is profitable or not?
A˜ How should online unit function to achieve operational efficiency and how they are managing customer relationship?
3.4. Research Approach and methodology:-
Research data collection is carried out both quantitatively and qualitatively. It will become difficult to distinguish between these two methods. Generally quantitative research method means collecting numerical data or coded information for objective analysis, data will be later interpreted.
Qualitative research method is data collection by observations by people’s activity generally and they are noted in coded description. However, this codified information can be used for later analysis. The important form of this method is often reporting and interpretations by researcher by timely observation.
A semi structured interview will be carried out during research which consists of analysis of Sainsbury and Tesco stores for data collection about home delivery. Interviews will be carried out with key persons like grocery manager, online delivery driver, and duty manager etc in each store to collect the quantitative and qualitative data. The quantitative data will be gathered for analysis. And results will be drawn from the following methods.
This study uses semi-structured quantitative primary analysis (interview for data collection) and majorly uses qualitative method (secondary source) to identify UK grocery sector and to focus to answer research questions stated. Interviews will provide large amount of information which is main source of information and key pathway for time-constrained studies such as this (Esterberg, 2002).
3.4.1. Case study and historical analysis method:-
According to Yin (1989), there are mainly five major investigating methods in social science research namely surveys, archival analysis, case studies, experiments and historical analysis. He also distinguishes them on the basis of three criteria; those are i) what kind of research question will be asked, ii) what will the degree of control over present behavioural consequences and iii) present emphasis compared to past events. Case studies and historical analysis are desirable approaches to evaluate strategies of organisations. These methods are useful to describe and answer the “how” and/or “why” scenario when events happen beyond researcher control and also while researching present phenomenon in real-life time.
Inductive and deductive approaches will be used for analysis of research data. Inductive way means drawing the general conclusions from researcher based on empirical grounds. Deductive approach means drawing the conclusions from researcher’s logical reasoning (Ghauri, et.Al,. 1995).
This study focus on collecting information regarding operational strategies of Tesco and Sainsbury and to understand, why they are providing online shopping facility to customers while many of the supermarket failed to stay in game. During the process of study, the companies’ actions or strategic implementations from them are beyond the control of researcher, case study and historical analysis methods will be best, for a part of research.
On this part, research study is carried out through qualitative meta-analysis for selected e-grocery organisations. Answers to main research questions will be collected qualitatively for each individual case (Lyons, 2003). The collected data will be analysed and possible relationships between business models and various out comes will be fetched out. This method is used to compare operations characteristics and strategies of Tesco and Sainsbury from the gathered data. This is the systematic approach for cross comparison of business models.
There are few draw backs in meta-analysis such as, since data collected from various sources, hence, results’ quality is directly depends on the quality of source. Another, may companies may use similar strategic approach to achieve their goals which may be rarely identical. There is no unique approach to analyse data for meta-analysis. This effort is made to reveal answers from confirmed information from various sources (Graney and Engle, 1990).
3.5. Significance and limitations:-
The study is carried out on case studies and available literature for the analysis of success in online grocery business, hope this study helps to find the major research questions.
A· Study carried out to compare business models of only two named companies. This study is limited to only e-grocery business of Tesco and Sainsbury’s home delivery methods.
A· Dissertation will be carried out only in the grocery section and applicability of results to other departments is not recommended.
A· Dissertation will be carried out for sample quantity which will restrict the chances of generalisation.
FINDINGS, RESULTS AND DISCUSSIONS
In recent studies evidenced the growth of online retail sector. More than 1 million customers shopped online in Tesco. Tesco’s reported a growth of A£1 billion in sales and A£56.2 million profit in 2005 (Tesco Annual Report, 2006a). Along with “Tesco.com”, “Sainsbury’s online” sales also increased in the same year. Online shopping is one of the fastest growing parts of internet usage area. (Forsythe and Shi, 2003). Both retailers and customers are passionate about the growth and usage of internet potential. Internet is very good channel for two-way communication. It has got ability to hold loads of information and can able to facilitate innovative features into that. The adaptation of innovative activities results in increasing competition in market. The technological development in the field of internet has created a new channel for all retailers to increase their sales and profit. Internet became most flexible channel for business development. (Doherty et al., 2003).
4.2. RESEARCH FINDINGS:-
The chapter reviews the strategic track followed by UK’s leading e-grocers for development based on case analysis and historical study. The research is carried out on basis of secondary sources.
4.2.1. Research findings: Case analysis:-
In 1995, Sainsbury came out with new method of shopping, “Wine-Direct” by mail ordering system. They promoted new online service in competence with Tesco on the announcement of Tesco’s first online wine service (Sainsbury Annual report plc, 1995). Expansion of online shopping from seven stores by end of 1997 resulted in additional advantages for customer in terms of shopping list and home delivery. The service expanded to another 30 stores by the end of 1998.
Sainsbury’s e-commerce was designed to provide adequate information for the customers to enhance their shopping experience. The e-commerce designed as an integrated part of retail service rather than as simple separate business channel. According to Sainsbury’s CEO Dino Adriano, Sainsbury’s e-business strategy will act as a pillar for future company’s business growth. The portal will be designed and developed to provide complete information about categories, online-shopping benefits and offers, interacting information and transaction details (Sainsbury Annual report plc, 1999).
In 2000, Sainsbury initiates series of e-commerce activities. These activities are mainly focused on business to business and business to customer solutions for various reasons such as b2b cost reduction, improving availability of product and stream lining of internal systems, high level automated warehouse picking systems (in expectation of joint venture with Carlton TV for online shopping at M25 area) and website re-launching etc.
According to CEO, these types of initiative activities create new value. Company’s E-commerce is an integral part and it provides various offers as a part. Company will design its all aspects innovatively to create new value. Dino Adriano also addressed that, they have learnt a lot from their R&D department about operational principle and home shopping methods and its economic implementations. CEO quoted as store based system is not feasible or adequate to deal with significant volume of orders without compromising quality of service for in-store customers. And also he mentioned that, it is not suitable nor sustainable one for long-term. Sainsbury designed new system called “picking centre” for first time to compete its main rival Tesco (where Tesco adopted in-store picking system for home delivery system) (Sainsbury Annual report plc, 2000) without neglecting its offline service.
However by 2001, ware-house picking system and in-store picking system constituted fifty percent of national coverage in e-grocery system (Sainsbury Annual report plc, 2001). Sainsbury attained second position in e-grocery market with its 71% coverage. (Sainsbury Annual report plc, 2002).During 2004, expansions of e-grocery methods to more in-store picking system reduced considerable cost in logistics and order fulfilment. This became one of the important milestones in Sainsbury’s e-commerce history.
In later stages further cost reduction activities took place such as complete shutdown of automated picking centre (Sainsbury Annual report plc, 2004). But during 2005, due to difficult financial situations online systems’ expansion was put on hold. New recovery plan was introduced to regain the same position (Sainsbury Annual report plc, 2005). As an effect of recovery plan, supermarket performances increased in 2006. Sainsbury started to operate online shopping system in 97 stores and acquired fourteen percent of UK’s e-grocery shopping (IMRG, 2006)
In Sunday Times, Tesco groups CEO, Terry Leahy told that, Tesco will be the largest and world’s number one online grocer. He also quoted that, they were intended to attain rank one in UK’s e-commerce (Lorenz and Nuki, 1999). Tesco offered its online service to ninety percent of UK’s population. The goal of UK’s number one e-commerce business achieved at the end of year 2000. In 2001, Tesco established Tesco.com as autonomous subsidiary to Tesco Plc. According to Tesco groups’ CEO, Tesco.com became important part of its e-commerce business to implement future strategies. Tesco will ensures the requirements to Tesco.com such as resources, focus etc to grow quickly.
According to Terry, online services are diversified for various offers. These offering include non-food products and financial services (Tesco Annual Report, 2000). Wal-Mart provided a countermove against Tesco’s improvement and expansion by acquiring ASDA in UK. Online shopping system became ideal shunt road to compete with Wal-Mart in sales in presence of Wal-Mart’s bigger physical presence. The website internet strategy will become real competitor by expanding Tesco virtually over online (Tesco Annual Report, 2000). Tesco developed semi-automated product picking system for in-store picking instead of fully automated ware-house picking system and it also supported online business by introducing refrigerated delivery vans (Delaney et al, 2003)
The Tesco’s new strategy results in rapid development of online business over geographical areas in UK. From this growth Tesco will able to operate e-grocery from 300 stores and provided service to ninety-one percent of UK’s population. Ireland is the first country for Tesco.com’s expansion outside the UK (Tesco Annual Report, 2001). In addition, Tesco.com fetched its services to blind and partially blind people by providing “Tesco Access system”. “See it Right” award was awarded by Royal National Institute for Blind for Tesco’s contribution (Tesco Annual Report, 2001). At the end of 2003, Tesco online was able to provide its service to ninety-six percent of UK’s population. This constitutes sixty-five percent of grocery shopping market. Tesco also diversified its products ranges to financial services and also telecoms. In that year only it expanded its online business to Far East market, South Korea (Tesco Annual Report, 2003).
Tesco.com invariably concentrated on upgrading its technology. The constant up gradation streamlined its services and provided innovative features to expand its range of services for online shoppers. Sales growth reached almost A£1 billion by 31.9% up in sales. Profit considerably increased to A£56.2 million from A£54.9 million. (Tesco Annual Report, 2006). Tesco also opened dedicated online warehouse to provide service and boost up sales in flourishing areas. The warehouse designed similarly but eliminated operational difficulties in brick and mortar stores. However, the requirements of such warehouses are very few (Tesco Annual Report, 2006). Still today, diversification of products and services are on continuous process by adding innovative activities such as movie DVDs directly to door, energy utilities-customers saved money on gas and electricity bills. Customers also utilised e-diets and internet telephony methods to improve their health and lifestyles. In addition, Tesco offered non-food products as a part of expansion of business (Tesco Annual Report, 2006) which further increased the sales and accounts for sixty-six percent of UK online market. (Comscore networks, 2006).it also launched its own computer software to boost up the brand image (Tesco Annual Report, 2006).
4.2.2. Research findings: cross-case analysis
Cross case analysis is generated from series of observations, semi structured interviews and website analysis. Website’s interactive features provide a good both way communication channel between customer and retailer. In initial stages, companies designed their websites to provide extra information to customers such as financial information, product details, corporate governance, annual review etc. But in later stage, it has been developed as information resource which provides additional information such as recipes, delivery checking service with post-code or place, store locator, online community links etc..All these features provided to customers to increase sales. The complete information can be classified as Corporate Information: – for example, annual reports, recruitment and financial statements. And Customer information: – for example, product description, technical details, delivery details, store locater etc.
The above strategic development of case retailers shows similarities and differences of their strategies. Two retailers introduced online shopping system well before to other retailers, this has been an added advantages to companies to acquire majority of market share.
In 1997, Tesco and Sainsbury introduced some customer information. In later stages, information exchange became two-way communication channel. Generally, all major features are implemented by all retailers but Tesco being the first and Sainsbury being the second in position for their online web-site development. Tesco and Sainsbury offer similar level of competition at online service. They expanded their website to provide adequate information. In 2003; these features resulted in considerable growth in internet technology and online channel which provide greater level of access to their consumers.
All retailers are innovative to design their online sector, however, Tesco being marginally number one in that area to implement new methods and new online shopping strategies. Analysis revealed that there are similarities among both retailers in website designing features. Tesco and Sainsbury offered e-marketing, loyalty cards point-checker etc innovative features to their internet shopping system.
Some other features were launched such as online customer survey by Tesco and virtual museum by Sainsbury, but they had very less life span. Almost all retailers are using similar method of servicing due to lack of differentiation among themselves. But they are well aware of their competitors’ web growth and ready to adopt the new strategies implemented by competitors. The degree of information features is higher when it compares to experimenting in innovative features.
E-commerce became stable and matured in retail sector. It started to release its benefits to business filed. Each retailer closely observed and monitored competitors’ growth and readily mimics their new features. Information features have been developed into two-way communication models. The recruitment process, customer service and relationship management, and online marketing features revolutionised the online shopping growth. E-commerce became most important tool for development of business strategy for companies. Online shopping system tool blend traditional business and e-grocery business. For an instance, Tesco’s customer service served as customer interaction channel to provide operational efficiency for online services.
By analysis of annual reports, 2003 was a major milestone for online retail business. Online sales and innovative activities such as, information to customer, e-marketing etc result in evolution of new trend of online shopping. Although Tesco and Sainsbury were leading online retailers in 1997 but there was no significant development in online sector until 2001. In 2001, vast varieties of products and services are offered to customers this became a pillar for e-grocery business. During 2003, Tesco introduced “e-shopping assistant” unit due to increase in product and service range. The complete order fulfilment process was handled by e-shopping assistant.
In conclusion, after examining UK’s leading online grocers and there strategic development, evidences show that Tesco as number one market leader. It acquired monopoly in online retail business. The four year experimentation in online grocery field resulted in designing in-store picking and product delivering system. Tesco rapidly covered majority of UK’s geographical area. Tesco became idle online retailer. However, Sainsbury is in close competition with Tesco and next in line. But both Tesco and Sainsbury use similar models for home delivering their products. All online retailers are going through several well-defined strategic steps gradually to become one of the major online retailing channels from low level of online activities.
4.3. Customers’ Orders Fulfilment:-
Order fulfilment is the main aspect of online grocery business (Boyer, Hult, Splinder & Santoni, 2003; Ellis, 2003). Generally, there are two models for order fulfilment. One is in-store picking system and another is ware-house picking system. (Tanskanen, Yrjola & Holmstrom, 2002). The first method is in-store picking method; in this system products are picked from in-store shelves and then it will be delivered to customers through delivery vans. The second method is ware-house picking system, which is normally automated system. It also called as dedicated picking centres. According to Delaney-Klinger, Boyer, and Frohlich (2003), if we compare both order fulfilment methods, in-store picking system will be profitable than ware-house picking method for company with limited sales. Shopping experience will be heightened by this method since household goods are delivered from nearest stores. (Seybold, 2001).However, for huge purchases, customers need to compete with normal in-store shoppers. There are more chances of out of stock situations for many products or for high volumes. (Boyer & Frohlich, 2002).
Another model is dedicated-picking system or ware-house picking system. This model is very helpful to minimise the picking cost for huge orders. Products are placed in ware house shelves and picking process is carried out through semi-automated system or fully automated system. Product quality also is ensured in dedicated centres (Roberts, Xu & Mettos, 2003). The ware-house product information is good enough for customers including volume and availability in real-time (Yousept & Li, 2004). Nevertheless, it requires huge initial investment. Building of dedicated units must contain sufficient volume of products, hence it constitute very large geographical area. And automated system instalments and specialised work force is an added investment. It also requires more logistic investment since majority of ware-houses are comparatively far in distance with consumer residence (Roberts et al., 2003).
According to Yrjola, implementing hybrid model to business will be the better method when compare to implementing picking-method in purest form. During 2004, various optimising methods were used to optimise online shopping system in the UK. These experiments resulted good returns to online retailers.
For example, Tesco implemented different experimental methods to choose the best possible method of order fulfilment. Tesco had many different methods.
a) In-store picking method for grocery delivery.
b) For wine delivery, they used both business models. Ware-house system is used to pick up case of goods and then they were delivered to customers via stores. There were some designated stores which will cross stock wines (means the stock will not account into store stock). Afterwards they were sent to customers via shipping.
c) They used company suppliers or third parties to deliver some kind of products such as DVDs, CDs etc.
However, the hybrid model will be beneficial when customer place orders to expected level. This model should be supported by back-end system also. Generally hybrid model will be implemented in geographical area where demand and population density varies time to time. Therefore, there are chances of several designs for different systems’ practices and investments. The online grocery shopping systems is a big and important challenge in retail sector. The main factors of home delivery system are sales per area which influence the cost for home delivery. Sales of online shopping are indirectly related to cost of home delivery. Another factor is delivery window proposed for customer in comparison with order volume. These factors constitute a challenging environment to the ware-house system (Punakivi, Yrjola & Holmstrom, 2001)
Sainsbury fulfilled its online orders using dedicated picking method in initiation stages and later it changed its strategy and method to in-store picking method. Sainsbury used ware-house system method to fulfil huge orders by customers but when orders are not sufficient or when order volume did not meet expectations it moved to in-store picking system. Sainsbury initially believed that, order fulfilment from dedicated picking system would be more beneficial compared to in-store picking system. Sainsbury designed dedicated picking system to provide complete shopping enjoyment, easy finding method for products and also to facilitate desired buying procedure by providing search option on website. However, Tesco initially used in-store pickings system and later it combined some other models to deliver products to customer. Tesco.com is using both dedicated picking system and in-store picking system for home delivery.
Online home-delivery is mainly based on four values namely varieties of products and its range, delivery of service, accessibility and convenience, and price (Punakivi, M., & Saranen, J. (2001). Nominal delivery charges are varies from A£3.50 to A£5.50. Products are of the same price for online shopping as well as for in-store shopping. Call centres became most supportive unit for online system. It helps to solve many customer issues concerned about online shopping. This section will explain complete procedure of online shopping systems. Another flow chart explains customer process for online order and delivery.
4.3.1. Online shopping ordering process:-
Ordering shopping online is one of the main parts of the online retailing system and by analysis it is clear that the general process in Sainsbury and Tesco are similar. Customers order process is described below. Ordering process will start as shown in flow chart. Customers register to the retailing sector through their valid e-mail id and they can continue shopping by logging in. After once log in, customers have to make confirmation whether home delivery is available in that post code or not. If facility is not available in that geographical location, customer may leave their details with company website. The advantage of leaving details will be they will be the first to get alert message once the company update their facility in that region. If facility is available then, customers can search their required product by using search facility system on website. The search facility is well designed in both Tesco and Sainsbury websites. The search can be carried out either through brand name of the product or product type. For example, customer can search ‘Volvo’ water by typing ‘Volvo’ in search space or can search complete water products available by typing ‘water’. They can also search in virtual store shelves by entering into shelves. Customer will go on adding essential products to basket by repeating process.
Next step, they will proceed to checkouts where they can add and modify their details such as delivery address and delivery timings etc. Delivery slots will be available from morning 10am to 10pm in Sainsbury and 7am to 11pm in Tesco. Delivery charges in Sainsbury is A£3.50 to A£5.50 and in Tesco A£3.25 to A£6.25. Both companies offer delivery slots for three weeks. There will be variations in delivery charges normally for peak hours and week end deliveries. The variation in Sainsbury is less and charges are A£3.50, A£4.50, A£5.50 and A£6 but in Tesco delivery charge variation are more they are A£3.25, A£3.50, A£4, A£4.25, A£4.50, A£4.75, A£5, A£5.25, A£5.50, A£5.75, A£6 and A£6.25. In Sainsbury, for orders below A£40 pounds they will charge A£6 and there is free delivery facility if customer shops more than A£100.
Once shopping process is complete then customers will move to payment method. There are two different payment methods available namely card payment and coupons. Customers may use credit or debit cards to pay bill and/or they can use discount coupons from companies. After payment receipt will be displayed and one copy will be sent to respective mail id.
4.3.2. In-store order picking process:-
In-store order picking is another important part of online delivery system. The below flow chart reveal complete process of in-store picking model. The online order from customer will be sent to nearest store. Order will be updated automatically in online department of the store. The employees will download order into their palm pilot. Employees will search product by moving around the store in person. Employees check its availability in the store with palm pilot in hand. If product is unavailable then they will first search for replacement product from customers list and check its availability otherwise they will mark as unavailable. Replacements of products are based on price and similarity of products and result will be store in palm pilot. Product will be scanned and then it will be added to employees’ trolleys. Once order is picked completely then employees will update information to the in-store computer. Updated shopping list and products will be sent to customer with delivery vans.
4.4. Home Shopping analysis: –
Home shopping is a process where customers order their goods through some other media like internet or phone and goods will be delivered to doors directly. Home delivery is facility provided by private sector up to now comparatively with public sector.
This unit will give analysis market share and profitability analysis of home delivery system. This section will also show analysis results of various factors for driving home delivery system into successful unit.
4.4.2. Nature of home shopping:-
Home delivery system is a synonymous with internet shopping or online shopping or e-commerce. There are different channels for home delivery and it depends on the customers social profiles. Therefore internet is becoming the potential channel among the business world. The different factors which drive customers to adopt improved technology to their day-to-day life. At the present situation, we can enlighten some shopping methods particularly. Those are:
A· Catalogue shopping method is one of main channels which aimed to capture growth sector compared to traditional business models.
A· Direct retailing is another method which process with phone ordering methods and subscription methods.
A· Online shopping method which provide opportunities to market goods internationally at competitive rate but this method should implement new services and products regularly to stay in game.
4.4.3. The current and future scale of home shopping:-
184.108.40.206. Estimation of home shopping:-
National statistical data shows that online grocery shopping sales constitutes 70% of the total sales of online retail sector in last 5 years. Retailing sector is more concerned about building new forms of strategies particularly for internet shopping. However, more online shopping is affected by catalogue shopping sales. For instance, Mintel (2003) estimates that seventy percent of constituted by online grocery sector, twenty percent from mail ordering system and remaining by others. E-grocery method is the fastest growing channel comparing to other channels. He also gave sample figures of present and future measures of home shopping. According to him, internet shopping has increased from 10% to 25% from 2000 to 2003.
|Size of online shopping market||£16.3 billion||£30.5 billion||£57.0 billion|
|Percentage of retail sales||8 percent||13.8 percent||Not available|
|Online unit sales||£4.9 billion||£11 billion||£22.5 billion|
|Online sales as % of total retail sales||Not available||4.3%||7.7%|
|E-grocery market||£530 million||£4.25 billion||£13 billion|
|Percentage of total food retail sales||0.6%||4.0%||11%|
According to Foley et al (2003b), the table is combined result of three expert organisations. Verdict, Key Note and Retail Intelligence are three organisations who made full depth analysis by interviewing 24 key policy members and key professionals. Final result is an average from all reports and from expert opinion it had been adjusted. It is predicted that online shopping will be doubled, with rapid growth from internet and e-grocery shopping methods.
Foley et al. (2003) also re-examined statistics about preponderance of online shopping. The re-examination displayed results that, in last 12 month 52% of customers have been experienced home online shopping. Result shows that men online users were comparably very lesser than women. It also shows that middle class people will use online shopping than the other socio-demographic levels and C2 (middle level in socio-demographic scale) level people are majority in society. According to the ONS (2004), home personal computer proportion increased from 33% to 55% internet user increased from 10% to 45% (analysed for 1999 to 2003) majority of UK residents had telephone and television (94% and 98% respectively).
220.127.116.11. Estimation of internet shopping:-
Cairns et al in 2000 conducted a review of online shopping system and its market which includes survey and research from Lex Transflleet, continental research group, Ernst & young, national opinion polls, Which?, And Fletcher Research. All results are summarised below.
The main feature of online shopping is profile of internet users and their behaviours towards shopping. In general, internet users and shopper will not have same profile base. Due to internet and technological progress profiles may change in terms of products and buying behaviour. The time pressed families and families with double income are the major part of overall online customers. These segments constitute the significant growth of online shopping and home delivery system. However, all major surveys report that internet profiles are diminishing regularly and it became day-to-day technology for everyone. Major features of online shopping and home delivery system are as follows:
A· Women internet users are more compare to men.
A· Majority of internet users are from rich and high class of society and have higher education level.
A· Generally online shoppers are well aware of technological development and know to use them.
A· Internet replaced majority mode of entertaining and time spending channels.
Internet became very easily accessible channel for everyone. People use to access internet from home, office, public places such as railway stations, bus station etc. Cairns et al (2000) provides numerical value and estimation of internet sales for online shopping and home delivery system. According to Cairns, internet sales in 1999 was 0.25% to 1%, he predicted its growth for 2005 as 3 to 7 % which constitutes A£7-A£20 billion of total sales where it constitutedA£0.6 to A£3 billion in 1999. His estimation for 2010 shows the available opportunity for online retailing sector which is A£40-A£113 billion (12-25%).
Online shopping and home delivery of grocery are the major part of Tesco and Sainsbury. E-grocery system is offering many distinctive deals and features for their customers. They can able to deliver goods at three temperatures they are frozen, ambient and chilled. Both companies are bound to provide very good, in time and short lead timely service to customers. cairns evidenced that home delivery of groceries have been in UK from more than 20 years but this internet revolutionised online shopping section. In the last few years Tesco and Sainsbury retailers have offered many more benefits to boost up their sales and it produced good results. Tesco and Sainsbury using logistic mode to pick, pack and deliver the goods to customers by using conventional supermarket stores. Tesco is the market leader, which provides home delivery of goods to 97% of UK residents (Tesco Annual Report, 2008). Sainsbury was being in next position with 88 %( Sainsbury Annual Report, 2008).
A semi-structured interviewed is carried out for general analysis of online sales from individual store. Interview is carried out in six Tesco and six Sainsbury stores. The collected data reveals that, Sainsbury stores deliver 120 to 150 deliveries every day. Whereas Tesco store deliver 200 to 300 deliveries every day. The shopping per basket in Sainsbury is A£40 to 60 where as in Tesco it is A£50 to A£80. Generally, Sainsbury deliver goods in 10 to 15 mile radius from the store but Tesco deliver goods in 7 to 12 miles radius from the store. Sainsbury stores operate his deliveries from 5 to 7 delivery vans and Tesco makes home delivery from 5 to 10 delivery vans. Average deliveries per van will be 15 deliveries in Sainsbury and 24 deliveries in Tesco. Each van can accommodate 30 deliveries and delivery van will leave with at least 10 deliveries for one time. The above finding and results showed that home delivery is a profitable business channel for online retail sector.
4.5. E-Customer relationship management:-
Customer relationship management core theme is to build up and sustain the relationship with consumers. CRM is the process of understanding customer wants and needs and to maintain longer relation with them. Customer selectivity is the one main important facet of CRM. Many more research studies revealed that, all customers are not productive to company. Hence organisations should designed there CRM strategies to attract profitable customer segment. Organisations should be focused to identify profitable and sustainable CRM methods which should produce brand to company and value to customer base in return.
In recent business life internet has created a revolution, some organisations believed that it will build customer relationship in cheaper cost compared to traditional one. Mass customization can be created by e-CRM methods. E-CRM can be defined maintaining customer relationships by using electronic media such as internet, mobile and other electronic channels. E-CRM channels are growing everyday which resulting in more competitive field. Organisations are spending more time to stay in game. (Nenad Jukic et al, 2003)
18.104.22.168.Different levels of E-CRM: –
E-CRM services can be mainly categories into three various levels namely, foundational, customer centred and value added services.
A· Foundational services are the basic service which provides website utilisation and responsiveness to online ordering.
A· Customer centred services provide security to online shopping, order tracking, designing and configuration of products.
A· Value added services are advanced stage of services which provides extra service like online training and online auction of goods.( Turban et al, 2008)
4.5.3. E-grocery system design for optimal performance:-
Designing online unit is purely based on behavioural attitude of customer. The development of sophisticated website is a challenge to new world. Designing of ‘mental models’ for online sector are very difficult process compared to real-models of traditional shops. (Badre, 2002) Tesco and Sainsbury use many different channels for optimisation of E-CRM. They are
Products are primary factor for initial online business consideration. According to Fisher (1991), providing limited range and well branded products will increase the customer accessibility and also decrease unnecessary confusion in picking products to trolley. In the later stages, increasing products range may increase customer satisfaction and also sales for company. Tesco and Sainsbury utilised the same theme for establishing their online grocery. To facilitate customers they implemented various search facility on their websites like search with product name or product type or product group or special offer products etc. This made companies to establish good relationship with customers.
22.214.171.124. Loyalty card:-
Tesco and Sainsbury maintain their customer relationship through different schemes; loyalty card is one of those. Both companies use their loyalty cards. Tesco’s loyalty card is called as ‘Club Card’ and Sainsbury’s card is called as Nectar Card. Tesco and Sainsbury are two supermarkets who offered loyalty cards in initial time. Tesco launched club card in 1994 for first time and Sainsbury followed Tesco in 1996. But in later stages Sainsbury’s reward card is replaced with Nectar car which is a loyalty card for many other major brands. These schemes had been developed to provide each customer an extra benefit for shopping and its main intention is to retain customers. Loyalty cards are beneficial if and only if customer do more shopping in their company chain. When customers do shopping in company they are gifted by points for their shopping. These points can be redeemed to get money off at shopping. Generally discount amount will around 1% of their shopping. On special products companies offer some extra points up to 4 times. These retailers also offer credit cards for their customers and will award points for their spending through credit cards [financial services also provide bonus points] (The Independent, 2005). The economist informed that the huge loyalty card database potential is the real benefit for retailers.
126.96.36.199. Shopping trolley:-
According to Bannister (2002) another greatest facility for customer is providing persistent shopping trolley. Trolley facility allows customer to shop in their free time and can checkout at that moment or else they can come back after a while to continue shopping.
Tesco and Sainsbury facilitates customer by providing online shopping trolley which will help customers in several modes:
A· Recognition of customer from the previous visit will make customer to avoid initial steps for shopping and it will also increase customer flexibility towards shopping in means of time and usage.
A· Customers can shop gradually and can add or remove products at check-outs.
A· For regular or existing customer their shopping list will be saved so they can re-order the same list of can make few changes or they can go for completely new list.
A· Companies can gather shopping data, so they can analyse customers’ behavioural towards shopping. It will help to improve the services and to design the strategies.
According to Hong et al (2004), providing product image facility to online customer will increase the shopping list of the customers. Since they are unable to touch or view the product directly providing images will help them to shop online more. However, some of researcher argued conversely that, implementing image facility need high performance and high speed internet facility to download images which will reduce the accessing speed of products since loading webpage will take time (McGoven, 2001). But recent improvements in internet speed wave off all these difficulties. Both Tesco and Sainsbury are providing image facility for majority of products.
Vrechopoulos et al (2004) stated three online store layout forms. They are
A· Freeform: – Free form layout is designed to display both shape and size. This forms is normally use in clothing section.
A· Grid form: – grid form will display all links or products on one screen. Display of each unit will be in rectangular position. These will be generally implemented in grocery section where more products to be shown at once.
A· Race track: – race track will organise individual area and display with built-in theme. These are generally used in large supermarkets.
Tesco and Sainsbury using race track layout for home page. Grid layout used for grocery and other individual sector. And freeform used for displaying individual product image.
This final chapter contributes complete summary of e-grocery research. This chapter covers contributions and limitations of the research study. It also provides possible research area for future research in e-grocery sector.
The dissertation conducted case analysis on two grocery industries of the UK namely Tesco and Sainsbury in an attempt to find out which operating strategy and business models they are following to make online grocery as a profitable sector. Four main research questions are designed to evaluate management style for expansion strategy , business model for online order processing and providing home delivery service, home delivery analysis to know whether home delivery is profitable or not and finally electronic-customer relationship management (E-CRM). Each question is investigated with appropriate and relevant data. Case studies and Meta- analysis evidenced the fact that, highly concentrated geographical areas are the best place to implement e-grocery service and for less denser areas, brick and mortar will be the best approach. Dedicated distribution system or Ware-house distribution will profitable if and only if the customers need and demand are grown to very high level where companies receive high number of order to maintain sustainability. Studies also evidenced that, expanding business carefully and cautiously results in profit. Avoiding huge investment at once and implementing step by step transformation will help organisations to gain high market share. The company management should possess very good knowledge and enough experience to make profitable and sustainable decisions.
Today’s online retailing sector predominantly using two business models for online order processing. Firstly, warehouse picking system and secondly in store picking system. Ware house picking system or dedicated picking systems operates orders by fully automated picking method. Warehouse model implementations require high initial investment and skilled employees which will further increase risk. Research studies show In-store picking method is profitable one for e-grocery business. Both Tesco and Sainsbury are using the same model for e-grocery. The cost advantage will make a considerable difference for organisation to improve sales and market share. The customer’s acceptance level for e-grocery system is still in babyhood in many geographical areas.
Each e-grocer tries several business models and strategies to provide best possible service to the customer and also to stay in competitive game. The existing traditional grocers like Tesco and Sainsbury require very less initial investment to implement in-store picking model. In initial stages these companies continued to serve even though their online business was not profitable because they followed basic business rule that is, balancing investment cost and customer demand for their implementation of strategies to avoid bankruptcy. This study provides existing best strategy and business model for e-grocers. However, there is no particular best strategy or business model. Companies are regularly attempting to choose best avenues for business success.
Tesco.com is the world’s largest e-grocer with turnover of â‚¬340 million. Other competitors are, Sainsbury, one of the main competitors with turnover of $65 million and ASDA-Wal-Mart with $60 million (verdict, 2006a). However, since 2001, the e-grocery has grown rapidly in the market and market value became doubled. Recent results show that, Tesco’s annual group sales of A£41.5 billion for UK (Tesco Annual Report, 2009) and Sainsbury’s annual group sales of A£21.3 billion for UK (Sainsbury Annual Report, 2009). The above result clearly states that home delivery system is profitable.
Customers are the base of business, more number of customers higher will be the progress. There should be good relationship between retailers and customers. Companies are striving hard to make CRM as effective as possible. The research reveals the importance of customer relation and also provides various methods to make it effective. Customers target many more ways to shop groceries due to several reasons. Providing convenient and flexible option will make e-grocery successful. Tesco and Sainsbury have come up with many more loyalty programs to retain their customers. But understanding customer behaviour and their characteristics are the most difficult area for business. This is one of the major research areas where future researchers can do research different ways to increase customer loyalty, need and demand towards e-groceries.
Conclusion statement: – Home delivery system (E-grocery system) is a strategic and economic contributor to Tesco and Sainsbury.
5.2. Limitations of the study: –
The study carried with several limitations.
A· The research is carried out only in two grocery companies namely Tesco and Sainsbury. Research is carried out only for grocery system. Applications of research results to other grocers or other departments are not recommended.
A· Research is carried out on the basis of case study, historical analysis and meta-analysis which provided results from the existing resources.
A· The dissertation shows the substantial differences in companies’ operational efficiency and cost of implementation of various home delivery business models. The findings are analysed broadly and operational efficiency is not researched to core.
A· Unattended delivery estimation is not included in the cost estimation of home delivery system.
5.3. Direction for future research:-
Since customer demand varies geographically and it also depends on different customer segments. Another direction for future research is pricing and service strategies for various geographic locations and customers.
In this research study, the most important and interesting area is customer demand and behavioural analysis. On one hand, customer demand of online grocery shopping is varying in different geographical locations. On the other hand, different service models will not increase customer loyalty. Hence main future research must focus on customer behaviour.
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