Essay: Online Grocery Business In Europe - Current Issues And Future Trends.

Business models of online food retailers

Question 1:

Analyze the current issues faced by the online groceries in Europe. What areas of the product delivery, customer service and supply change management are they handling well? What are the key issues and problems that they are currently faced with? What are the future trends in the online grocery business?

Based on the case study of online food retailers in Europe and US, it can be said that presently the online groceries model is based on for business model represented below:

Figure 1: Business models of online food retailers

Hence online groceries in Europe are using one or any combination of four approaches to distribute grocery to customers. However it is important to know that success of online grocery shop depends on two critical factors i.e. market potential and distribution costs. Hence issue faced by online groceries in Europe revolves around these two factors. In online grocery market, if the market potential is high then distribution cost remains moderately high (Morganosky & Cude, 2012, pp.17-26). However if the market potential is less then distribution cost becomes extremely high to a level where operating that online grocery business results in no profit.

European online grocery market has been multiple issues, which can be understood from the case study provided. Firstly customers do not find online grocery shopping cost effective. Except few specific segments such as that of young professionals and young mothers, majority of the customers do not want to pay a premium for getting just an additional service of picking the product from store. Grocery shopping related decisions are often made during the process of shopping itself (Hansen et al, 2014). However, online grocery shopping wants specific inputs and deprive the end customer of that entire experience. It can be said that an average customer who has access to a good supermarket majorly prefers to buy his grocery by visiting the store rather than going for online grocery shopping. Also, for European retailers, cost of setting up online grocery retailing has translated into high distribution cost and additional operational expenses which ultimately erode the profitability of the business.

However despite of issues, there are certain areas where the online groceries are handling well, for example in a business environment of online grocery, these organisations are handling the product delivery in an efficient manner. Companies are offering their end customers a time bound time of delivery, in fact in model of click and collect as well; it hardly takes an average of 5 minutes for a customer to collect his purchased grocery. Customer service is another factor which is being handled efficiently. Major reason behind efficient handling of customer service is the one-time customer impact in case of wrong or poor customer experience from online grocery shopping. Organisations offering online grocery shopping know this fact very well that, there is no margin of error when it comes to customer experience for online grocery shoppers, because any issue such as wrong delivery of food items, or poor quality of the grocery delivered can completely change the customer perception towards the organisation and he can quickly move to his competitor or can all together abandon the online grocery shopping model itself. However Supply chain management is one such aspect which is still in nascent stage when it comes to online grocery shopping. Organisations are still trying to find out the optimum way through which they can provide an efficient supply chain model (Anckar et al, 2012). For example in ‘Online to home’ model startups are renting dedicated warehouses to store the products, whereas in case of ‘Drive through’ model customer drives and collects the item after placing the order beforehand. Main issue lies with the brick and mortar business such as Asda, Tesco etc. who are now transitioning from pure brick and mortar model towards a hybrid model where they have presence online as well they have physical shops as well. In such case extracting efficiency from their current supply chain management is the biggest challenge, which they are facing.

Distribution costs and market potential

Some of the key issues which are being faced by the online grocery retailers are:

Consumers are increasingly shifting towards online retailers who can provide best value for money. That is why consumers are increasingly shifting towards retailers who are offering home delivery. But for online grocery retailers, home delivery has its own set of challenges. Firstly for them it is an additional operational expense. Secondly handling supply chain in case of home delivery is completely different from other models such as ‘click and collect’ etc.

Food and overall grocery retailing has always been a very competitive business. However the scenario completely changes when it comes to online grocery retailing. The amount of capital which companies are spending in setting up their online grocery shop is much more than the expected profit. Due to this reason, traditional stores across Europe and other parts of world still remains one of the most competitive ways of grocery retailing for organisations.

Majority of the population in Europe and United States, especially the one from middle age range still find it hard to trust on the quality of product delivered from online grocery stores. These people always prefer visiting the store, touch and feel the product and then only take a buying decision. Due to this reason, target customer market of online grocery retailing still remains less, however, despite of all challenges and issues which the organisations are facing in online grocery retailing. One thing is sure that future for online grocery retailing has tremendous potential. According to report by IGD Online sales are soaring and expected to more than double in value to £17bn by 2019, which is 8% of the total market. This means, that more and more people will be willing to shift towards this model in coming years.

One major trend will be use of smart phones based shopping. Currently online grocery retailing is focused more on websites (Ramus & Nielsen, 2013). With mobility already at a high rate, people are more and more shifting towards use of mobile applications to complete their day to day tasks such as banking transactions etc. In that case, online grocery retailers need to ensure that they are prepared with the mobile based application to support the customer demand for mobile based grocery shopping. Another major change which might surface is the partnership between brick-and-mortar business model and organisations offering pure online grocery shopping. This will help both business models to consolidate on each other’s strength and to remain efficient and competitive in current market situation.

Identify an Australian online store. Compare performance of this store with this store with the performance of the European grocery stores. What are the competitive advantages of the Australian seller? What are the areas where the Australian seller is falling behind? What e-commerce technologies and business processes would you advise the Australian company to adopt in order to improve its performance and increase its market share?

There is no doubt, that today internet has become the next big battleground for the supermarkets giants, as they see their revenue gradually increasing from online grocery shopping. In Australia, online grocery shopping is one of the fastest growing segments with profit of more than $2.45 billion. In terms of performance of Australian and European online grocery stores, it can be said that Australian online grocery stores are more profitable compared to their European counterpart.

Issues with online grocery shopping

This can be understood by example of Woolworths-Australian major retailer, for which online shopping increased in range of 50% taking its profit from $0.8 billion in 2013 to $1.2 billion in 2014. In which the organisation delivered more than 3 million items to homes.

Whereas on other hand, profitability of European online grocery retailers remain in range of 10-15%, this drops further in case of hybrid model offered by brick and mortar retailers who are managing both types of business model. In Europe brick and mortar model still dominates and accounts for more than 75% of the total revenue earned from the grocery shopping in 2013.

It doesn’t mean that European sellers are not competitive enough, but the amount of acceptance which Australian online grocery retailers have got is much ahead of what European grocery retailers are yet to achieve.

For example Australian online Grocery retailers have several competitive advantages:

Demographics have a major role in success of online grocery stores in Australia. For example, in Australia more than 40% of the total population in Australia comes in the age bracket of 25-45 years. This is one major target customer segment for the online grocery websites, as this is the age group which comprises of working professionals, students, young mothers etc. who forms the major customer segment of the online grocery. However, in case of Europe, demographic is one major issue. It is a proven fact that Europe is going through ageing problem, which means major part of European population is above 50 years of age. As already mentioned in the case study, online grocery retailer’s user base is from young segment of population. Due to this reason, Australian online grocery retailers are relatively more profitable and progressive as compared to their European counterpart.

In online grocery websites, home delivery is one major aspect. Whether it is click and picks model, or home delivery model, expansion of population plays a major role in ease of delivery. Europe as a continent has a vast geographical region with spread of population in a larger area. Due to this reason, setting up the logistics for facilitating the home delivery is a major issue for many retailers. That is why; online grocery retailers might be successful in a densely populated area, but their efficiency decreases when they enter into area where population density is less. In case of Australia, its geographical spread is far less as compared to European cities, due to which population density in each of the major cities is high which makes it a high potential market, and online grocery retailers find it much each to cater to the masses and provide services such as home delivery etc. without much increase in their operational cost.

In Europe online grocery sector is relatively less competitive, as it is mainly spearheaded by already existing players such as Tesco PLC, ASDA, Sainsbury’s etc. These organizations already have monopoly in the brick and mortar model, due to which there are less small online grocery organizations further resulting into decline in competition (Delaney-Klinger et al, 2013).

On other hand, Australian online grocery market is dominated startups, which means there is more scope of competition, which further results into competitive market. More competition in market helps in a better option for the end customer who gets benefitted from new offers, schemes, discounts etc.

Australian online grocery market however needs to catch up in terms of quality. As per report, in initial phase of the online grocery market there have been many issues reported related to quality of the product delivered to the customer. In case of Europe this is one major advantage; despite of less profitability companies are not taking chance with the quality of the product, especially since it might impact their brand name. Also, amount of capital which European company has to infuse in their business is huge, because many of the already established company have been running their retail business since many years. On other hand, Australian online grocery market has lack of investors and capitals, due to which they find it difficult to scale up their business. Overall it can be said that Australian company can become more efficient in their operations, but focusing on their supply chain management. They need to identify loop holes in their existing SCM processes, and accordingly take corrective actions to rectify it. They can also focus more on use of new technologies such as cloud computing to reduce their operational expenses.

References

Morganosky, M. A., & Cude, B. J. (2012). Consumer response to online grocery shopping. International Journal of Retail & Distribution Management,28(1), 17-26.

Hansen, T., Møller Jensen, J., & Stubbe Solgaard, H. (2014). Predicting online grocery buying intention: a comparison of the theory of reasoned action and the theory of planned behavior. International Journal of Information Management,24(6), 539-550.

Anckar, B., Walden, P., & Jelassi, T. (2012). Creating customer value in online grocery shopping. International Journal of Retail & Distribution Management,30(4), 211-220.

Ramus, K., & Nielsen, N. A. (2013). Online grocery retailing: what do consumers think?. Internet Research, 15(3), 335-352.

Delaney-Klinger, K., Boyer, K. K., & Frohlich, M. (2013). The return of online grocery shopping: a comparative analysis of Webvan and Tesco’s operational methods. The TQM Magazine, 15(3), 187-196.