CLICKS vs. BRICKS ONLINE GROCERY
SHOPPING
Prepared by:
S&M Consultants
Sisi Chan
Misha Wilkin
EXECUTIVE SUMMARY
Purpose of the Report
The purpose of this report is to determine if online grocery shopping is a venture that Thrifty
Foods should consider pursing. S & M Consulting has evaluated B2C Business to Consumer, business
models and B2B Business to Business, business models. S & M Consulting has developed a report
that includes the analysis of other online grocery shopping services and existing Supply Chain
Management procedures.
S & M Consulting has been developing e-Business solutions and Information Management
solutions for Thrifty Foods over the past month. S & M Consultants have done primary research and
secondary research to establish the best possible solutions to incorporate e-Business ideas into
Thrifty Foods. The primary research was collected from a manager that had worked for Thrifty Foods
in the past. The secondary research was conducted over the Internet from news articles, educational
links, and competitors’ business reports.
E-Business Solutions
Because of the limited geographic market share on Vancouver Island the prospects for Thrifty
Foods to offer Online Grocery shopping are low. The overall investment into this venture would
outweigh the return. However, S & M Consultants would like to develop possible solutions for Thrifty
Foods to use technology to enhance their business. The first recommendation is to sell deli platters
online. The second recommendation is to produce a more user interactive e-Flyer. The third
recommendation is to enhance communication with suppliers by using Intranets and Extranets to
relay information across these channels.
BRICKS VS. CLICKS
INTRODUCTION
Online Grocery shopping is a phenomenon that is entering the market place as a new way for
consumers to purchase groceries. Online Grocery shopping has worked in large metropolitan areas
where there is a large target market. However, online retailers have had to find ways to continuously
evolve. For example Grocery Gateway, a company a Hamilton based company has found ways to cut
delivery times down to 1.5 hours from 3 hours.
Online Grocery shopping is a business model that needs to continuously be developed in order
to make money in the future. There are a lot of failures in this business model already. For instance
Shopline.com and Shoplink went down last year, Webvan is struggling to survive, and Priceline.com
has dropped online groceries from their services. The biggest obstacle for Grocery Gateway is that
they need to establish a route density, so that their drivers are always busy delivering. This suggests
that online grocery services are a risky business.
Thrifty Foods
Thrifty Foods was co-founded in 1977 by Alex Campbell. Thrifty Foods has now grown from
one small store to a chain of 16 stores throughout Vancouver Island. Their business philosophy is
“look after the customers and look after your employees”. This has worked very
well for them, for they are the largest private-sector employer on Vancouver Island. Thrifty Foods
does not currently have an online grocery service. However, Thrifty Foods does have a web page
where customers can view an E-Flyer.
Purpose of the Study
The purpose of the study is to identify ways that Thrifty Foods can utilize a B2C business
model platform and the B2B business model platform. Thrifty Foods wants to remain a prominent
food retailer on Vancouver Island, so they should find ways to use technology to its fullest potential.
Scope of the Study
The study investigates the concerns with online grocery shopping in a limited geographical
market, online deli platter ordering, e-Flyers, and an integrated supply chain management model.
An objective is to recommend objectives that can be met realistically, and the benefits outweigh the
risks.
Sources and Methods
The primary research was gathered from analyzing web sites and reading newspaper articles.
The secondary research was conducted by asking a past manager at Thrifty Foods for information.
RESULTS OF THE STUDY
The findings of S & M Consulting will be presented in three parts: Online Grocers, E-Ideas,
and Supply Chain Management.
Online Grocers: A Competitive Analysis
Thrifty Foods needs to analyze their competitors from the physical and digital aspects. The
physical competitors of Thrifty Foods are The Real Canadian Superstore, Safeway, Fairways
Market, Save-On-Foods, and various neighborhood grocery stores. Of all those grocery businesses
only Safeway and Save-on-Foods had a website. Safeway was the only grocery business that offered
an online grocery service, however, the grocery service is only available for consumers in the US.
Next the
digital competitors where analyzed. The companies that are being compared
are Web Van (formerly HomeGrocer.com), Home Run, Net Grocer, Peachtree Network, Peapod,
PDQuick, Planet Veggie, Grocery Gateway, and Safeway. Thrifty Foods and Save-On-Foods both
have websites, but they do not have online grocery shopping services. The grocery stores with
websites will be analyzed according to the areas they service, the delivery time, the minimum
delivery orders, and the delivery charges.
Thrifty Foods vs. Competitors Stores with Websites
WebVan.com
HomeRuns.com
NetGrocer.com
PeachtreeNetwork.com
Peapod.com
PDQuick.com
PlannetVeggie.com
GroceryGateway.com
Safeway.com
SaveOnFoods.com
ThriftyFoods.com
Online Shopping
US
yes
Canada
YES
NO
Service Area
Vancouver Island
FIGURE 1. Competitors in the cyber marketplace
Peachtree Network is an interesting company because it teams up with grocery stores across
North America. Peachtree Network is a Montreal based company that has developed an e-business
platform, which connects the buyer to a network of regional grocers. For example Village Food
Markets in Sooke, BC, and Quality Foods, on Central Vancouver Island, have partnered up with
Peachtree Network. The advantage for the regional grocer that partners with Peachtree Network is
that they get a branded website without setting up an Internet operation of their own. This saves
time and money and can build customer satisfaction because the system is up and running, and has
been tested and tried.
Analysis of Competitors Delivery Service for Online Groceries
Delivery
Window Minimum Order
WebVan.com
HomeRuns.com
NetGrocer.com
PeachtreeNetwork.com (Nanaimo, BC)
PeachtreeNetwork.com (Sooke, BC)
Peapod.com
PDQuick.com
PlanetVeggie.com (US Second Day)
PlanetVeggie.com (US Priority)
PlanetVeggie.com (International)
GroceryGateway.com
Safeway.com
Minimum
Delivery Fee
Maximum
Delivery Fee
Customize
US $75.00
FREE
FREE
2 Hours
US $50.00
US $5.95
US $10.95
4 Days
US $24.99
US $8.00
US $12.00
1 Day
CAN $25.00
CAN $5.95
CAN $5.95
1 Day
CAN $25.00
CAN $10.00
CAN $10.00
1 Day
NONE
US $9.95
US $15.95
30 Minutes NONE
FREE
US $2.99
2 Days
NONE
US $9.95 first 2 Lb.
Plus US $0.50 per Lb.
3 - 7 Days
NONE
US $3.95 first 2 Lb.
Plus US $1.00 per Lb.
Air Mail
NONE
US $19.95 first 2 Lb.
Plus US $5.00 per Lb.
90 Minutes CAN $60.00
CAN $8.00
CAN $8.00
Same Day
NONE
NONE
US $60.00
FIGURE 2. Comparison of the Delivery Schedules and Prices of Online Grocers
Most of the websites are easy to navigate and offered tutorials to teach customers how to
shop. To remain competitive there where many tactics used by all of the companies some offered
special care packages that could be delivered anywhere, and other offers included, coupons, free
samples, fast delivery, or dollar discounts for trying the service.
Online grocery shopping does have many risks, for many of these businesses have recently
failed. There are problems associated with online grocery shopping such as frozen items, items that
must remain refrigerated, fragile items, conflicts with delivery schedules and routes, and the cost of
setting up these business models.
Frozen Items
Refrigerated Items
Fragile Items
Delivery Schedules
Costs
E.g. Frozen Pizza and Ice-cream
E.g. Meats, Seafood, and Dairy
E.g. Eggs
E.g. Everyone wants their groceries at 6:00 pm
E.g. Cold Storage and Setting up the System are expensive
FIGURE 3. Problems associated with Online Grocery Shopping.
There is also some research done by Forrester Researchers that examines the obstacles of
online grocery shopping. This research indicates that the online grocery market will remain small for
a long time.
1.Relative market share.
Forrester predicts Web users will order $4.5 billion worth of goods
from online grocers by 2003 à only 1% of all groceries sold.
2.Lack of demand.
Limited geographic availability and a small overall target market
combine to constrain demand.
3.Delivery fee resistance.
Consumers are trained to expect coupons and discounts. Pennypinching consumers will object to paying a premium for the
convenience.
4.Psychological resistance.
Purchases can be very personal. An online grocery service will keep
records which are similar to the information gathered from “club
cards” Consumers may dislike lack of privacy
FIGURE 4. Research presented by Forrester Researchers
E-Ideas
The following E-Ideas are recommendations of services that Thrifty Foods can offer over the
Internet. We have compared Thrifty Foods website to the competitors websites. We have two
recommendations for Thrifty Foods to enhance their current website; they are improved
and offer
E-Flyers
Online Deli Platter ordering.
Thrifty Foods has their E-Flyer set up so that it is a copy of their current print advertisement
that is presented in Adobe Acrobat reader. Each page is separate are the user needs to hit the back
button on their web browser to see another page of the advertisement. The overall impression is
that the advertisements are difficult to navigate. The overall suggestion is that Thrifty Foods should
create user interactive advertisements. Thrifty Foods is constantly having drawings to win things like
computers and appliances, they could build a client database and incorporate pull type
strategies into their sale promotion strategies. This would be achieved by adding a box onto the
entry form asking the consumer if they would like to receive the E-Flyer in their email accounts.
ADVANTAGES
§ Saves money on printing costs
§ Saves paper; good for the environment
§ More potential Customers
DISADVANTAGES
§ Quality can be poor
FIGURE 5. Advantages and Disadvantages of E-Flyers
Online Deli platter ordering is a suggestion presented to Thrifty Foods. The concept is quite
simple, and easy for anyone to use. The orders will need to be made at least one day in advance.
1.Customers order deli platters online.
2.Click and make selections.
3.Time and date entered for delivery.
4.Payment available online e.g. credit card, EFT,
and paypal.
5.Order at least one day in advance.
DISADVANTAGES
ADVANTAGES
§ Ordering is easy
§ More potential Customers
§ Customers may not get what they want
§ Problems with delivery
§ Problems with payment
FIGURE 6. Advantages and Disadvantages of Online Deli Platters
SUPPLY CHAIN MANAGEMENT
Thrifty Foods does already have a Transaction Process System in place to keep track
of Thrifty Foods inventories, issue receipts to customers, and organize financial information. But the
system can be improved so that it (1) captures information at the point of sale. This information is
(2) conveyed to the date warehouse, and then a receipt of the transaction is (3) created. The
information is then (4) cradled in the data warehouse where information is then (5) communicated
with the suppliers by ordering inventory.
FIGURE 7. Diagram of Transaction Processing System
Transaction Processing System
(TPS)
2
1
Thrifty Foods
Data
Warehouse
3
4
5
Suppliers
B2B EC allows for reduced inventories and pull type strategies for supply chain
management. In the pull type system the procurement process starts when the sales information is
first conveyed at the point of sale. Procurement management can reduce the time between the
outlay of capital and the receipt of inventory. By using a B2B platform Thrifty Foods could
incorporate just in time delivery to keep the highest quality stock available for their customers.
Other
Suppliers
Thrifty
Foods
Thrifty
Foods
Thrifty
Foods
Customers
FIGURE 8. Procurement Management
Traditionally organizations have acted independently, which can result in conflicting objectives.
Thrifty Foods can us their information system for procurement management, and they could also
share their information with their suppliers. By sharing this information they can create business
alliances. The benefits of these alliances would be sharing resources, establishing permanent
supplier-customer relationships, and creating joint research efforts.
Currently the suppliers pay a fee for the position of their products on the grocers’ shelf. On
special sales promotions the supplier pays a premium to have their product placed on an end capper;
the display at the beginning of the aisles. The supplier also sends substantial inventories, which are
sent back to them at the end of the promotion if the products are not sold. Thrifty Foods could use
shared information to see when the suppliers have excess stock, and order the product at a discount.
This could save Thrifty Foods money and help the suppliers move their products.
Management - Suppliers
Management – Thrifty Foods
Human Resource Management
Human Resource – Sales Associates
Technology – Intranet & scheduling software
Technology – Transaction Processing System
Procurement – Through Intranet & Extranet
Procurement – Though Intranet & Extranet
Delivery
Receive Make the Just in Time
Sales
& Store Product
Automated
Service
Receive
& Store
Just in
Time
Product & Delivery
Service
Sale
Scanner at
point of
Sale
Service
FIGURE 9. Porter’s Value Chain
Porter’s value chain shows how the customer’s moment of value can be in proved. The idea is
that when Thrifty Foods sells the product the computer in their data warehouse relays the
information to their suppliers’ computer; which would begin by scheduling the delivery, packing the
product, and getting the product from their warehouse. By using procurement management and
sharing information over an Extranet as a B2B EC business platform the suppliers can deploy just in
time delivery to ensure that the end use customer is always getting the most current and freshest
product available on the market. Value is added for the customer by placing the product:
1. When the customer wants it à the product is always in stock.
2. Where the customer wants it à In Thrifty Foods aisle.
3. How the customer wants it à Quality is equivalent to freshness.
4. Perfect delivery à Customer service and quality product.
FIGURE 10. The Customer’s Moment of Value
Automatically replenishing the product can differentiate Thrifty Foods from their competitors. A
well-executed system can be expensive, time consuming, and may not yield an immediate benefit for
Thrifty Foods. However, there is potential for cost savings in the long run. The overall advantage is
that inventories can be reduced, but kept constantly replenished, and service levels can increase. For
example, Campbell’s soup uses an
automatic replenishing system to ship their products. This
has resulted in 50 % less inventory in the stores, and 98 – 99 % improved service. To keep this
system running the retailers send their current inventory levels and sales data to Campbell’s soup
every weekday morning.
The demand for Thrifty Foods products is inelastic; a small increase in price will result in an
even smaller increase in demand.
Thrifty Foods
makes the highest
gross margin
percent markup on
these items:
1. Bulk Foods
2. Deli
3. Produce
4. General Grocery
5. Meat and Seafood
6. Milk and Dairy
7. Flowers
(1 indicates the highest markup, and 7 indicates the lowest
FIGURE 12. Thrifty Foods Profit Margins
A big obstacle for Thrifty Foods is storing products in a warehouse. The storage takes up
space and can be very expensive. The expense of storing the products in a warehouse could wipe out
the profit margin completely. Also the products that Thrifty Foods sell are perishable. Thrifty Foods
needs to continuously turn over their merchandise to ensure that it is always current and fresh.
The biggest
problem for Thrifty
Foods is that their
products are
perishable and it
deteriorates over
1. Meats and Seafood
2. Milk and Dairy
3. Deli
4. Produce
5. Flowers
6. Bulk Foods
7. General Grocery
(1 indicates most perishable items, and 7 indicates the least perishable items)
FIGURE 13. Perish ability of Thrifty Foods Products
CONCLUSIONS
Throughout evolution man has evolved into a hunter-gatherer. The process of going to the
grocery store and picking the items your self will be hard to replace. Consumers may be wary of
online grocery shopping because they do not know what they are getting until it gets to the door.
The main problem is that they may not be satisfied with the product. Problems that the consumer
may experience are: long delivery delays, the produce may not be good enough for them, the frozen
items may be defrosted to a degree, or the fragile items may arrive broken.
In the business end there are other concerns with online grocery shopping. Many online
grocers have failed during the past year, and others are struggling to survive. Most of the online
grocery services are catering to huge metropolitan areas because of the larger target market.
Online grocery shopping will only benefit people searching for specialty items they cannot get
anywhere else. For example people looking for exotic truffles; they are hard to acquire, and because
the truffles can be dried the cost of shipping wont be outrageously high because the truffles are very
light. The World Wide Web can make it easier to track down these types of items.
RECOMENDATIONS
HIGH
Online
Groceries
Online
Deli Platters
R
I
S
K
E-flyer
Procurement
Management
LOW
LOW
BENEFITS
HIGH
FIGURE 14. Cost – Benefit Analysis
S & M Consultants would not advise Thrifty Foods to pursue online grocery shopping as a
business venture because there are too many risks involved, and the costs may outweigh the
benefits. The market area on Vancouver Island is relatively small, so there is a limited market reach.
However, offering consumers the convenience of ordering deli platters online may be an
option. Many businesses use the deli service for office parties or for snacks at a meeting. Also many
people use the Thrifty Foods deli platters for catering at special events if they do not want to spend a
lot of money. The deli platters do need to be ordered in advance, so the concept could easily
integrate into a B2C electronic business model.
Thrifty Foods could also improve the sales promotion flyer and make it easier to navigate, and
user interactive. They could also build up a customer subscription by applying an additional field to
their entry forms, asking if they would like the E-Flyer to be delivered to their email account and then
a line asking for the email address. This could benefit Thrifty Foods by saving printing costs, and
also building an even stronger customer loyalty.
To remain technologically inclined Thrifty Foods should find ways to continuously improve their
transaction processing system, and create a supply chain integrated system. The process could save
Thrifty Foods a lot of money in the future on warehousing costs. The system can decrease inventory
but always keep the shelves stocked with the freshest inventory available. The value will directly
benefit the end use consumers because they are getting the freshest products, when they want
them, and where they want them.
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