Online Grocery Retailing is Tricky Business
This article will:
Prevent you from going bankrupt
Demonstrate Internet opportunities for traditional retailers
Show cost/profit modeling for effective e-business planning
My motivation for this article is the analysis of commercially successful and commercially failing online grocery retailers. I have experience as wholesale supplier of two well managed but failing online grocery businesses.
Management Summary
Success of online grocery shopping depends on market potential and distribution costs.
These key issues are interdependent. If market potential is high, distribution costs are moderately high. If market potential is low, distribution costs are extremely high. Because market potential of online grocery shopping appears to be low, online grocery retailers try to gain market share by lowering consumer prices (and margins). Result is a low margin operation with extremely high operating costs: the ultimate nightmare of every entrepreneur.
It is the ultimate challenge to develop an exception to this rule and the solution to this dilemma. There are three possibilities:
Niche marketing: focus on a small, affluent and service oriented consumer group
Focus on margin rich products, that sell well on the internet
Focus on information distribution
These three solutions should be combined into a powerful Internet strategy, that should be executed in an excellent way. But there are many pitfalls and critical success factors. The pitfalls and success factors cover the entire marketing mix, the logistics system, information technology and internal organization.
High expectations but low online grocery penetration
In 2000 online grocery shopping was a hype. Some major e-commerce consultants were very optimistic about market potentials. Andersen Consulting used to predict a market share of online grocery shopping of 20 % in the year 2003. These optimistic predictions were used by Peapod.com to explain its high potential, and in 2001 defunct
Prevent you from going bankrupt
Demonstrate Internet opportunities for traditional retailers
Show cost/profit modeling for effective e-business planning
My motivation for this article is the analysis of commercially successful and commercially failing online grocery retailers. I have experience as wholesale supplier of two well managed but failing online grocery businesses.
Management Summary
Success of online grocery shopping depends on market potential and distribution costs.
These key issues are interdependent. If market potential is high, distribution costs are moderately high. If market potential is low, distribution costs are extremely high. Because market potential of online grocery shopping appears to be low, online grocery retailers try to gain market share by lowering consumer prices (and margins). Result is a low margin operation with extremely high operating costs: the ultimate nightmare of every entrepreneur.
It is the ultimate challenge to develop an exception to this rule and the solution to this dilemma. There are three possibilities:
Niche marketing: focus on a small, affluent and service oriented consumer group
Focus on margin rich products, that sell well on the internet
Focus on information distribution
These three solutions should be combined into a powerful Internet strategy, that should be executed in an excellent way. But there are many pitfalls and critical success factors. The pitfalls and success factors cover the entire marketing mix, the logistics system, information technology and internal organization.
High expectations but low online grocery penetration
In 2000 online grocery shopping was a hype. Some major e-commerce consultants were very optimistic about market potentials. Andersen Consulting used to predict a market share of online grocery shopping of 20 % in the year 2003. These optimistic predictions were used by Peapod.com to explain its high potential, and in 2001 defunct