Online Grocery Shopping
CS 330:
Business Information Systems
Group 6:
Chong, Kevin 99155865
Lai, Sindy 00109528
Law, Emily 98216416
Tang, Amanda 00026619
Tang, Dorothy 00121688
Yu, Danny 00140625
INTRODUCTION
3
STRATEGY
5
PROCESS
8
PEOPLE
11
TECHNOLOGY
13
CONCLUSION
15
APPENDIX
SOURCES OF REFERENCE
157
15
2
Introduction
The Internet provides consumers with a new medium for obtaining useful
information and for purchasing goods, information, and services. Therefore, the
technology and availability of the Internet resulted in a new generation of opportunities
for e-business ideas1. Online grocery shopping is one example of an e-business idea.
Online grocery shopping is not only about technology and making sales, nor is it of
interest only to industries and businesses, but it is also about transforming the economy,
within and across geographic areas, and changing old markets and creating new ones.
The main purpose of online grocery shopping is to create and develop new models, and to
optimize the relationships between a grocery company and its customers, suppliers,
partners, and internal stakeholders. Changing from shopping at the supermarket to online
grocery shopping can improve an online grocery retailer’s productivity by shortening
supply chains, reducing overhead costs, and enabling “just-in-time” service. Moreover,
the business concept of online grocery shopping can make the recruitment process more
effective, credit control more efficient, employees better informed and empowered, and
the enterprise more responsive to changes in the markets. Therefore, being connected
electronically drives other changes that optimize business processes and performance.
Additionally, online grocery shopping is the key advantage for competitive success
because it empowers a company to reach it goals more efficiently and quickly.
In 1989, Peapod was one of the very first online grocery retailers; nowadays,
successful online grocery companies are all over the world. Specifically, Grocery
Gateway is one of the most successful Canadian online grocery companies. Grocery
1
http:// www.webtrust.net
3
Gateway was formed by two university graduates in 1996. The team chose the idea of
online grocery shopping from one of the many opportunities that the Internet could
provide2. By using the idea of online shopping, Grocery Gateway simplifies people’s
lives by providing them with a useful service to rely on and by bringing them the things
that they need. One of the reasons that the company is successful is because the business
applies a new control system that is different than most other e-commerce businesses.
The company controls every stage of e-commerce transactions; therefore, needing not to
rely on others to ship the products, which is a more efficient and reliable method. The
people are another component the company cares about, as understanding the relationship
between the employees and customers is a key factor for the company to be success.
Therefore, Grocery Gateway hires people that can represent the company well—people
who are friendly, caring, reliable, and organized. By having a friendly face-to-face
strategy to deliver products to the customer’s door, customers become more comfortable
with adopting this new e-commerce idea; that is, to shop for groceries online3.
Online grocery shopping is happening now and has become an integral part of
doing business; thus, a company in such industries (i.e. groceries), cannot ignore its
impact. Online grocery shopping is also an opportunity to increase efficiency, reduce
costs, and expand the reach of today’s global computer network. In order to be successful
with this idea, an entire plan must be considered. Within the plan, four important factors
must be considered (strategy, people, process, and technology) as one could not work as a
part of the whole without the other.
2
3
http://www.grocerygateway.com
Ibid.
4
Strategy
For the past fifty plus years, grocery shopping has always been a popular event
for a common household: the father, mother, son(s), and/or daughter(s) would go to the
local supermarket to buy treats of their choice4. However, with changes in the economy,
some families have difficulties in finding excess time to go grocery shopping on a daily
or weekly basis, as both spouses may be working. As a result, entrepreneurs have
developed a process of online grocery shopping. With this innovating approach, families
can save time and effort to shop at supermarkets.
The innovative team at Grocery Gateway has thought of many strategies to better
serve their customers. By doing so, Grocery Gateway has become a dominant figure in
the online grocery shopping industry. The company’s main approach sets themselves
apart from the general e-commerce business strategy; that is, to deliver the goods from
start to finish. Grocery Gateway’s focuses on providing and owning the “last mile” of the
transaction5. Many of other e-commerce firms were unable to complete the last mile and
thus, became bankrupt.
Grocery Gateway provides a unique website that helps encourage repeat
purchases and differentiate it from other competitors. On the website, customers can shop
for products in several ways—they can search for a specific product by brand name or
category, sort by sale items, price etc. The user-friendly website is a leading factor in
building brand loyalty, creating credibility of the company, and attracting and keeping its
customers.
4
5
http://www.grogate.com/history.html
Ibid.
5
Other online grocery retailers provide the service of buying the products as
specifically requested by the consumer and then they will help the customer buy at their
partner’s stores and provide delivery as well. However, Grocery Gateway has adopted a
new strategy: to set up centralized warehouse at major locations6. The strategy process
enhances profit margins since there are now a supermarket rather than a middleman that
simply deliveries the goods. Also, this strategy along with “just-in-time” deliveries, the
strategy ensures shipping products of the best quality, reduces stock-outs, increases
inventory turns, lowers waste and spoilage of perishable goods, and reduces the shrinkage
associated with store personnel and customer handling of in-store products.
Teamwork is the key in attaining results for a company, such as the importance of
finding partners to reduce costs and sharing risks. Longos, an up-market supermarket
brand in the GTA, is an early investor of Grocery Gateway. The involvement with
Longos enabled Grocery Gateway to provide product guarantees for its customers
without spending millions in building a brand name. Other partners include Environics
Research, Compaq, Visa, Canadian Living magazine (which provide recipes for Grocery
Gateway’s online meal planner feature7), and recently, Home Depot and Sobeys.
Attracting investors is often difficult for a company if growth opportunities do not
exist. The team at Grocery Gateway took exception to this and explored growth strategies,
which consisted of two major areas: (i) expanding into additional market areas; and (ii)
moving on to provide products other than groceries. As a result of growth strategies,
Grocery Gateway soon won the approval to include beer and wine in the line of products.
The company then introduced new partners such as Brick Breweries, Henry Pelham
6
7
http://www.grogate.com/market.html
http://www.grogate.com/news1.html
6
Wineries and Kittling Ridge Winery. Thus, growth opportunities and partnerships,
enables the firm to continue to expand its client base.
The management also learned lessons from its predecessors. Other online retail
stores went bankrupt because they expanded too quickly. The funds provided by
investors were consumed faster than the company could provide a return. Although other
similar e-business plans might have been excellent, the shortfalls of funds led to their
demise. As a result, Grocery Gateway has taken a conservative approach to expanding.
The important of the management style of the team is important to achieve business
strategies that lead to success. Most online grocery companies aims to improve people's
lives by introducing interactive shopping to a wide consumer market, appealing to its
customers, while aspiring to be the world’s leading and preferred provider of interactive
grocery shopping services. Management strategies usually incorporate efficient business
models that allow competitive pricing and web technologies that will be able to increase
sales; thus, expecting higher gross margins and better profitability than traditional
grocery retailers. Additionally, management strategies aggressively test new systems to
continuously improve services and the implemented systems. The management usually
has financial planning and strategies for funding or raising capital to expand the company
if there are any valuable opportunities. Top-management changes are made by hiring
experienced officers to improve in the areas of marketing, products, and customer
relation, in order to achieve a higher level of profit8.
President and CEO Sellery explains, "Grocery Gateway learned early on that
highly efficient logistics and friendly and reliable customer service are the keys to our
88
“Peapod, Inc., and the Online Grocery Business” Alan B. Eisner & Nicole Belmont, Strategic
Management Concepts and Cases 12 Edition, 2001
7
business. Getting groceries to the door, as ordered and on time is what it's all about,9”
Sellery’s statement summarizes the essentials of retail business; that is, to build a good
customer relationship. With a good relationship, customers will feel satisfied and will
purchase again, which essentially builds the customer base.
Process
By combining technology with business strategy, online grocery shopping
simplifies life for those who do not enjoy grocery shopping, those who are stressed for
time to shop in supermarkets, and/or those who are occupied with work. Generally, the
process of traditional supermarket shopping takes more nine steps than online grocery
shopping—from picking a box of cereal to bringing the box of cereal to home. On the
other hand, online grocery shopping provides efficient service that eliminates most of the
steps in the traditional supermarket shopping and it only involves few steps to complete
the whole process. Online shoppers go on websites for grocery shopping, often while
being able to view the pictures, ingredients, or descriptions of products. Shoppers can
also select specific items by name, work from established personal shopping profiles or
lists, and/or browse electronic aisles.
Special services may also be available to simplify the process. Perhaps, a
representative arrives at a consumer’s house with a barcode scanner and records what the
shoppers already have in the refrigerator, the storeroom, and medicine cabinet. Then, the
agent posts a first draft of the shoppers' personal shopping profile on the website for
shoppers to edit. After ordering the products online, the shoppers will pay for their
products online. Online grocery shopping services may accept one or more methods of
9
http://www.grogate.com/history.html
8
payment: credit cards, bank debit cards, electronic funds transfers, personal cheques,
and/or money orders.
Next, the online grocer will assemble orders from online shoppers10. Currently,
two common models for assembling orders for online grocery include the warehouse and
store model. With the warehouse model, a business uses a company-owned and operated
central distribution warehouse to store, pick and pack the groceries as ordered by the
shoppers for delivery11. The warehouse model is popular with most established online
grocery companies, as it reduces overhead costs, generates the lowest-fees possible to
customers, and is the most efficient. With the store model, groceries are picked off from
the shelves of local retail stores or supermarkets. Online grocery companies usually
contract or partner with local supermarkets for getting groceries.
Delivery is the last step of online grocery shopping. Some online grocery retailers
have a delivery computer programs that provide time management information and pointto-point directions throughout the delivery route. The program takes into account traffic
conditions, rush-hour volume, road construction, and other uncertainties that can be
predicted within the local area. Some companies require shoppers to be at home to wait
for the delivery. However, many shoppers may not be able to stay at home; therefore,
other companies offer the option of unattended delivery, allowable by using a cold
container that keeps products fresh for a limited time. The deliverers take back the
container left from the previous delivery when they make the next delivery. For a higher
price, other companies will install a box in the shoppers' garage that includes a
10
“Online grocery shopping: An analysis of current opportunities & Future potential” Consumer Interest
Annual, Volume 46, 2000
11
“Peapod, Inc., and the Online Grocery Business” Alan B. Eisner & Nicole Belmont, Strategic
Management Concepts and Cases 12th Edition, 2001
9
refrigerated part, a frozen part, and a part for dry goods. The companies will also install a
keypad outside the shoppers' garage for access to the garage in order for deliverers to
place orders into the box12.
Grocery Gateway uses a direct-to-consumer online shopping model, which is the
warehouse model as it incorporates a market centre to store, pick, and pack the ordered
groceries for delivery. The model has a supply chain management system that allows
groceries to be delivered directly from Grocery Gateway's market centre to consumers'
doors. The company’s Customer Fulfillment Centre that offers an extensive selection of
food, grocery products, and household goods, which improves the company’s inventory
and delivery management. On the other hand, the centre also helps to manage the
company’s growth by allowing more capacity in space and helping to improve picking
accuracies by using technologically advanced radio frequency picking tools, conveyors,
and scanners to ensure fast and accurate processing of orders. In addition, the facility has
five temperature areas designed to keep all products as fresh as possible.
After the ordered items are picked, the products are packed inside a tote, which is
a plastic delivery box built into the delivery trucks. Grocery Gateway currently has over
100 delivery trucks, with more added every month, and the delivery trucks are
temperature-controlled to maintain the integrity of product freshness throughout the
process13.
12
“Online grocery shopping: An analysis of current opportunities & Future potential” Consumer Interest
Annual, Volume 46, 2000
13
http://www.grogate.com/market.html
10
People
“People issues are often the most critical part of a successful information
system.14” Employees are essential to carry businesses in the economy, including the
online grocery industry. The people are the strength and assets of a business. The workers,
including the management teams, are the ones who develop the business strategy and
vision, as well as those who are responsible for commencing the ideas.
Significant changes have taken place since online grocery shopping was first
introduced into the market. A new way of grocery shopping has altered the training of
employees, job specifications, as well as the organization of a firm’s structure.
Online grocery stores gain competitive advantage by tailoring the shopping
process according to customers’ needs. With new technologies and strategies, these new
virtual grocery shops concentrate on providing speed and convenience. At the same time,
these stores retain their expertise in grocery shopping by hiring employees and their
management teams who are familiar with the regular grocery industry.
New training is provided for employees since the companies can provide the best
service only when the people know how the business operates. As a result, the
technologies and process of businesses driven by the business vision and strategy are
introduced to employees at the beginning of the hiring process.
With the new process of doing business, new job specifications have evolved
from existing regular grocery duties. To efficiently run online grocery stores, each
employee is hired for a specific job. In addition to the regular duties found in other
grocery stores, new jobs are created to facilitate the new electronic feature of the stores.
14
“Business Information Systems”. Mark Arnason and Gordon Sandford. 2002.
11
In the case of Grocery Gateway, new duties, such as field service representatives
and professional shoppers, are created as a result of the new business process. Grocery
Gateway centralizes its buying procedure in the Customer Fulfillment Centre (Customer
Fulfillment Centre), where professional shoppers and field service representatives work
together to fill customers’ orders. The responsibilities of these positions are designed to
speed up the transaction while retaining the accuracy of the order. In addition,
technologies are incorporated into the procedure. For instance, new training is necessary
for the newly-hired professional shoppers as they are required to operate a handheld
scanning device, which completes the buying process more efficiently. At the same time,
jobs such as delivery and store clerks continue to be an integral part of the electronic
grocery shopping experience. Furthermore, Grocery Gateway is operated by a team of
experienced management staff, who are experienced in both the grocery industry and the
technology sector. As a result, Grocery Gateway becomes a more advantageous online
grocery store as compared to others in North America. For instance, the company’s
Executive Vice President and General Manager, John Mozas, is accountable for all dayto-day activities in the grocery operations and applies his previous experience into
developing commercial strategic plans15. Grocery Gateway is also able to maintain its ebusiness infrastructure under the direction of its Chief Technology Officer, Brain C.
Miller. Again, Miller ensures the effective of the technology incorporated for Grocery
Gateway with his expertise in software development from his prior work at IBM and his
education at the Ivey School of Business at the University of Western Ontario16.
15
16
http://www.grocerygateway.com
Ibid.
12
Technology
Grocery Gateway prides itself with a grow-slow approach ,17 and thus, being able
to withstand the burst of the tech bubble, and with respect to technology, Grocery
Gateway leads the pack. With the fall of Webvan in 2001, many believed that the end of
the road was inevitable for the money-losing e-grocery industry. Despite this, Grocery
Gateway, a key player in the providing the Greater Toronto Area in Ontario with egrocery services, weathered the storm and continues to grow. Re-engineering the logistics
process with the strategic implementation of technology into a state-of-the-art picking
and packing systems at the automated market centre is the key to the company’s success18.
Efficiency is the determining factor for the survival of the fittest in an industry
where errors can put the company out for good, which only seems logical as reengineering plays a vital role in the growth process. The pioneer of e-groceries, Peapod
initially started off with a partner-based model, but after mounting losses, management
shifted the operations to a warehouse distribution model which many competitors still use
today. Peapod then led the way with propriety software used to facilitate efficient order
fulfillment and delivery routes, accumulate customer purchasing data and integrated
pricing, merchandising, and production promotion. In addition, Peapod offered an array
of highly functional features such as virtual aisle browsing, personalized web pages, a
‘Buddy E-mail’ that notified a second email address of the purchases and an extensive
library of information on products with pictures, nutritional information, and product
17
18
“E-grocer soon to break even on deliveries” Patrick Brethour, April 11, 2001 (Globe and Mail)
http://www.grogate.com/technology.html
13
ingredients. Later, Peapod became the first user of handheld scanning devices that
utilized computer optimized customer orders.19
Grocery Gateway and other competitors soon followed the lead and used a team a
team of pickers equipped with Bluetooth Palm handhelds and picked items from the
uploaded optimized grocery lists inside the warehouse. Although with a good start, some
soon realized that certain orders led to human errors and was generally an inefficient
process. Improvement included implementing lighted arrows to point to products on
warehouse shelves that were to be picked. However, the system relied heavily on the
premise that items were initially stocked properly and that the software was updated in
the event of modifications to the warehouse and product changes20. Recently, the
company acquired Skulogix21, which is run independently, and specializes in customized
software and fulfillment services for online shopping,22 and is now used in their
automated picking and packing system at their Customer Fulfillment Centre located in
Mississauga. Using the new system, the average time spent on picking and the scope of
human error were greatly reduced and improved.
Most of the technology behind the backbone of Grocery Gateway’s website is
housed and hosted by a third-party facility which ensures that the site is online and
addresses the problem of security issues, which is guaranteed by a security policy to the
customer on Grocery Gateway’s website. The web and database servers are also
outsourced to third-party networking industry providers which use various load-balancing
19
“Peapod, Inc., and the Online Grocery Business”. Thompson, Arthur A. Jr & Strickland, AJ III Strategic
Management: Concepts and Cases 12th Ed, McGraw Hill Irwin, 2001
20
“No automation without frustration” Patrick Brethour, August 16, 2001 (Globe and Mail)
21
http://www.grogate.com/news5.html
22
“Web grocer bags 2 firms” Patrick Brethour, July 17, 2001 (Globe and Mail)
14
techniques in their systems23. In addition, Grocery Gateway enlisted the services of Front
Logic Inc., to bring in its proprietary Typengo N300 search engine, which is capable of
searching for direct matches through phonetic sounds (e.g. “serial” for “cereal”) and
synonym-based searches. Moreover, Front Logic provides advanced reporting
capabilities enabling items, which are most actively requested, to adjust the catalogue to
inventory fluctuations24.
The use of their technology has open the doors for improved customer service
through Customer Relationship Management, by offering customers targeted marketing
campaigns, discounts and recommended products based on their purchasing patterns.
Moreover, an additional stream of revenue is realized by offering this information to
other marketing companies, but this raises many issues with how this information is used
and distributed. Unfortunately, customers generally do not have the privilege of opting
out, but should generally read the company’s privacy policy to find out more.
Conclusion
Current trends of online grocery shopping are reflective of usage and shopping
trends with the Internet25, especially with the younger generation of Internet users. In
1999, a research company predicted that in 2003, the online grocery market would grow
from $5 million to $10 million26. Although statistical polls and surveys show that
consumers tend to resist buying groceries online27 more so than other products, recent
trends of traditional supermarkets having an online component, such as Loblaws28 and
23
http://www.grogate.com/technology.html
http://www.frontlogic.com/news_press_20020610.shtml
25
http://www.fmi.org/e_business/onlinepromo.pdf
26
http://www.innogize.com/papers/grocery.html
27
Ibid.
28
http://www.loblaws.ca/online_services/index.html
24
15
Sobeys/IGA29, suggest that more consumers are willing and opting to purchase groceries
online. The advancement in technology, alongside with considerations with the business
strategy, the process, and the people, enables online grocery companies to incorporate
automated warehousing, the ability to offer additional services (such as Grocery Gateway
partnering with Home Depot), and the use of handheld information devices30.
Despite the steady growth of online grocery providers, only approximately 12%
of surveyed respondents31 feel that purchasing groceries online is better than the
traditional activity, which suggests, that companies, such as Grocery Gateway, need to
overcome some limitations. Although online shopping allows for convenience (although
not necessarily saving that much time32), possible barriers for the successful transition
from traditional to online grocery shopping may include the wait between time of order to
delivery, the costs of extra service or refunds, the convenience, and any other costs that a
traditional grocery store may lack. One limitation of Grocery Gateway is that the
customer must be home to receive his or her order. Other companies, as discussed earlier,
may leave re-useable cooler containers that would be picked up at a later delivery or
install refrigerator-like units. However, if many customers order from the company only
once, is not satisfied with the service, and does not ever order again, the company would
accumulate extra costs to replace the loss. The process of change management is also a
barrier to online grocery shopping. Often, consumers shop for groceries routinely, as a
break from work or the family, and/or even as a social activity with family, friends, or a
29
http://www.iga.net/en/
http://www.innogize.com/papers/grocery.html
31
http://www.fastcompany.com/online/28/survey.html
32
http://www.innogize.com/papers/grocery.html
30
16
community.33 Some consumers also prefer to be present at the supermarket to pick out
their own products (to physically see what they are buying, especially produce and meat
items).
The transition from traditional to online grocery shopping will take time but with
the rise of Internet usage in the twenty-first century, and with effective business strategies,
people, process, and business management, Grocery Gateway, and other similar
companies, may rise to success and outlast its pioneer, Peapod, to eventually be the
leading virtual grocery store in Canada.
33
Ibid.
17
Sources of Reference
Consumer Interest Annual
“Online grocery shopping: An analysis of current opportunities & Future potential”
Volume 46, 2000
Globe and Mail
Brethour, Patrick
“No automation without frustration” August 16, 2001
“Web grocer bags 2 firms” July 17, 2001
Grocery Gateway
http://www.grocerygateway.com (online store)
http://www.grogate.com (corporate site)
Independent Researcher
http://www.innogize.com/papers/grocery.html
Loblaw Online Services
http://www.loblaws.ca/online_services/index.html
Sobeys IGA Cybermarket
http://www.iga.net/en/
Strategic Management Textbook
Thompson, Arthur A. Jr & Strickland, AJ III “Strategic Management: Concepts and
Cases” 12th Ed, McGraw Hill Irwin, 2001
The e-tail Experience: What Grocery Shoppers Think—About Online Shopping
(by Food Marketing Institute)
http://www.fmi.org/e_business/onlinepromo.pdf
18