Grocery Gateway Case Study

Grocery Gateway Case study

1. Is the Grocery Gateway business model sustainable? How does it compare to the approaches used by other companies in this industry, such as Tesco?

The company was founded in 1997 and already in 2001 has become the largest online grocery company in Canada. They were one of the first companies where customers could order almost any product from the website, including even fresh produce, meat, frozen foods, or dry goods. Any orders could be delivered within 16 hours and the average price was lower than at the local market. The chief operating manager, Claude Germain noted that Grocery Gateway focuses on two things: low-cost of their goods and a high level of service logistics provided in one market. Meanwhile, the other companies had a focus on merchandising or technology while Grocery Gateway aimed to have the lowest cost capability along with the best service they could provide.

Comparing Gateway's business model with other grocery companies, such as Tesco, one can identify some differences. Firstly, Tesco focuses on highly valued brands. It means that the company develops its own-label brands, such as Tesco Fines or F&F clothing, in order to provide clients with quality products and low-level of the competitive prices. Secondly, Tesco is more oriented on the international market (Mark, 2005). It includes opening up the new F&S franchise stores in the foreign markets, for instance, in the Middle East and Saudi Arabia. Thirdly, Tesco aimed to increase their staff number. The company increased its number of employees to 20, 000 for the last 2 years. So, unlike Grocery Gateway, Tesco was more oriented on the merchandising, international market through acquisitions/joint ventures and increasing staff.

2. How much money is at stake? How about when sales reach 5000 deliveries per day?

According to the Exhibit 2 in the case study, the total amount of orders per week is 7,818. This is on average 1116 orders per day with the average value of $135. Totally, the company receives approximately $150,775 per day for its deliveries (daily volume 1116 multiplied by the average cost per order $135).

If they will have 5,000 orders per day they get $675,000 a day as revenue.

One stop brings on an average of 135 dollars (one stop is equal to one order, which is on average $135). So, using 2.7 stops per hour the company receives $364.5 ($135 per stop multiplied by 2.7). Increasing the number of stops per hour from 2.7 to 4 will increase revenue to $540 per hour ($135 per stop multiplied by 4).

The cost of drivers and vehicles is $30 per hour. Since a driver only has 6.5 hrs for delivery in its shift, the number of orders delivered taking 6.5 hrs into consideration comes as 6.5 * 2.7 = 17 orders per shift of 8 hours. So, for delivering 1116 orders per day, you need 1116/17 = 66 shifts. So the variable cost for delivering 1116 orders at 2.7 SPHOA comes as 66*30*8= $15840 per day. If the stops per hour are reached 4, then in one shift 6.5 * 4 = 26 orders could be delivered per shift of 8 hours. So, for delivering 1116 hours per day, you need 43 shifts. So, the variable cost for delivering 1116 orders at 4 SPHOA comes as 43*30*8 = $10320. So, the variable cost saving per day comes as $5520. For delivering 5000 orders, the savings will be very significant at 4 SPHOA.

3. Do you think that Grocery Gateway can afford to increase its delivery fee? If so, by how much?

According to the Gateway's policy, the minimum order should be no less than $60 and the delivery fee is $8. It is high enough price for delivery so I think that the increase in the delivery fee could lead to loss of customers. Especially if customers take small orders, less than $100, they will pay 12% or more fees for each delivery. I think it will be too much, and therefore cannot recommend increasing fee.

4. What is the capacity of Grocery Gateway’s delivery operations? How many trucks will it need to handle 5000 orders per day?

Every day, the company carries out 1500 orders maximum having about 100 drivers and 55 trucks capable of transporting at one time a total of 125 totes filled with cold produce, dry goods, and frozen items. In order to fulfill 5,000 orders, they will need to handle about 165 trucks and also increase the number of drivers, to at least 300 drivers.

5. What other options should Dominique consider?

Recognizing that the company needs to look for alternative ways, I could propose five alternatives other than the alternatives Dominique is already considering.