Use Of E-Commerce In The Online Retail Insdustry

Executive summary:

• This report is written in order to assess the current situation of the online supermarket and grocery industry.

• This report will also analyse the possible future developments of the industry.

• This report will also summarise the high barriers of entry that exist in the online supermarket industry.

• The report states the main competitors in the online grocery markets both in the UK and the US.

• Textbooks, journals and online resources will be used to compile the up to date information on the current market.

Terms of reference.

This report is for the attention of Dermot Kelly. It provides an overview of the current market situation and forecasts for the future of the online supermarket grocery industry.

1.0 Introduction

The purpose of the current report is to identify the current situation of the online grocery market. Market leaders and market competition will be identified. Business models and strategies from various companies in the market will be discussed, as well as future developments and future impediments to the market.

E-Commerce can be defined as “The electronic exchange of information that support and govern commercial activities including organisational management, commercial negotiations and contracts, legal and regulatory frameworks, financial settlement arrangements and taxation” (www.espc.co.uk) From the definition, it is implied that e-commerce is centered on the electronic exchange of information. This is accomplished via the existing telecommunication infrastructures, particularly the Internet.

This type of shopping is becoming increasingly popular and many more high street stores and supermarkets are now offering this facility. DTI and PricewaterhouseCoopers, (2002) stated that the Internet has facilitated the emergence of new strategies and business models in several industries. These models and strategies’ will be discussed in this report. Based on recent empirical evidence gathered in the UK, this report will illustrate current developments in the strategies and business models of online supermarket retailing. The main evidence has been collected through journals, textbooks and online resources. Some of the tendencies are comparable to what happened in retail banking with the introduction of Internet banking, but other tendencies are unique to the supermarket retailing industry. This is a rapidly evolving area of online business.

Findings 2.0

Groceries are different from many other products, such as music and books that are commonly purchased online. Many grocery products are perishable and therefore time-sensitive in terms of their delivery needs. In addition, groceries are a replacement product, i.e., the same basket of products is more-or-less purchased on a regular basis. Finally, groceries are high-touch items, meaning that consumers like to inspect the quality of items they are purchasing.

Ellis, C, (2003) stated that the first obstacle concerns physical distribution to the household. Especially for grocery retailing the challenge is to find solutions for home delivery that are convenient for the consumer and cost efficient. “The Internet grocery market is an extension of the home-shopping philosophy and a sector with considerable long-term potential. Both retailers and customers derive benefits from the practice”. (www.marketresearch.com) Online shopping enables customers to view a wide range of products, to compare prices and to arrange delivery at a convenient time. In this regard, Morganosky and Cude (2000) found that 73 percent of e-grocery shoppers reported that convenience and saving time as the primary reasons that they use the Internet to buy groceries.The appeal of e-grocery services is also influenced by many consumers findings grocery shopping a stressful activity. In a study of 239 respondents, Aylott and Mitchell (1998) found two major stressors associated with traditional grocery shopping, namely crowding and queuing. According to Keh and Shieh (2001) these consumers are typically time-starved, have above average income and dislike grocery shopping. Of related interest, Morganosky and Cude (2000) reported that over 50 percent of e-grocery shoppers earned over US$50,000 per year, and 80 percent of e-grocery households comprised two or more adults. This is rationale for the projected growth of the online grocery industry.

One of the schemes that supermarkets have adopted is selling goods and services via the internet. According to HolmstrÐ"¶m.J etal. (2005) it is expected that online sale distribution of food products, and other services, will play an increasingly important role for many of the major supermarket chains.

Until recently electronic grocery shops have offered extra value for customers only by doing home deliveries (HolmstrÐ"¶m.J etal. 2004 ). However, this is not enough if electronic grocery shops want to reach the critical mass of consumers. This critical mass of consumers is looking for cheaper prices as well as better service. (HolmstrÐ"¶m.J etal. 2004 ). This has led to the situation where almost every electronic grocery shop has had to reevaluate their roles. Customer service is still important, but low expenses have taken a more important role. Furthermore, the word “service” does not mean only home deliveries any more. There are a lot more aspects of service than home delivery in the electronic grocery industry. Customers appreciate things such as delivery window, easy way of receiving and wide product range. According to Chesbrough, H. and Rosenbloom, R. S., (2004) This has led to a situation where there is two different ways of operation in the electronic grocery markets. First, there are electronic grocery shops that offer home deliveries as intermediators in the supply chain. Second, there are electronic grocery shops that offer good service, but also cheaper prices for consumers. This second group of electronic grocery shops has created a totally new channel between manufacturers and consumers. Based on the pioneering e-Grocery businesses two basic strategies for e-Groceries can be identified:

• The intermediary model, where the e-Grocer offer consumers home delivery from local

supermarkets

• The channel model, where the e-Grocer