The return of online
grocery shopping: a
comparative analysis of
Webvan and Tesco's
operational methods
Kelly Delaney-Klinger
Kenneth K. Boyer and
Mark Frohlich
Introduction
Groceries and other food retailers operate in
one of the more mundane, yet fundamental
and pervasive industry segments in the world.
Everyone eats, thus everyone must purchase
food from some retail outlet. Consequently,
the grocery industry is a huge, fragmented
and enormously competitive environment.
Annual sales in the USA are $434.7 billion
(Weir, 2000), yet the competition for these
sales dollars is intense, with the top ten
supermarket chains holding much less than
50 percent of the market share (Urbanski,
2001). The intense competition is often
described as leaving supermarkets to operate
on razor thin margins that averaged 1.03
percent of sales in 1997-1998 (Weir, 2000).
During the Internet frenzy of 1998-2000,
numerous new, pure play Internet grocers
promised consumers that they could have
grocers at prices equal to or lower than
existing bricks-and-mortar grocery stores,
while simultaneously enjoying unparalleled
convenience without having to leave the
house and battle the crowds at the stores
themselves. The most prominent of these
companies was Webvan, which reached a
stock market value of $7.9 billion at the end
of its IPO. Webvan, Home Grocer, PeaPod
and several other Internet grocers made huge
bets that selling groceries online was a growth
market and represented a new way of doing
business. Unfortunately, as has been
illustrated by the widely publicized collapses
of these high profile Internet grocers, there
was a substantial gap between theory and
practical application.
In contrast, there are currently several
examples of grocery and other food delivery
companies that appear to be making effective
use of the Internet as a link with customers. In
particular, both Tesco in the UK and
Albertson's in the USA currently have
Internet channels for selling groceries that are
profitable (Hall, 2001; Koller, 2001).
Whereas many of the failed Internet grocers
appeared to be hoping to capture a large
portion of the overall grocery market,
companies such as Tesco and Albertson's
view Internet ordering of groceries more as an
additional sales channel. This channel is
unlikely to ever represent a majority of grocer
sales, but even a small portion of sales can be
quite significant due to the huge size of the
overall market.
The authors
Kelly Delaney-Klinger is a PhD student in the
Management Department, Kenneth K. Boyer is an
Associate Professor in the Department of Marketing and
Supply Chain Management, both at The Eli Broad
Graduate School of Management, Michigan State
University, East Lansing, Michigan, USA.
Mark Frohlich is an Assistant Professor in the
Operations Management and Technology Department,
London Business School, London, UK.
Keywords
Grocery, Delivery, Electronic commerce,
Operations strategy, Supply chain management
Abstract
This paper provides an examination of the Internet grocery
industry by providing a comparison of two business models,
that of the now-defunct Webvan and that of Tesco, the UK's
leading grocer and the world's leading online grocer. The
two businesses are first compared according to the level of
strategic alignment between marketing and operations
strategies displayed. Demonstrates how creating a match
between a firm's operations and marketing strategies is
critical for success. In addition, an e-operations profiling
method is used to compare the operating characteristics of
the two e-commerce ventures to traditional business
operations. The result is further evidence as to why Tesco
and other bricks-and-mortar grocers are achieving greater
success selling groceries online than did Webvan. Finally,
predictions are offered as to the future of electronic
commerce in the grocery industry.
Electronic access
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available at
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The current issue and full text archive of this journal is
available at
http://www.emeraldinsight.com/0954-478X.htm
187
The TQM Magazine
Volume 15
.
Number 3
.
2003
.
pp. 187-196
# MCB UP Limited
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ISSN 0954-478X
DOI 10.1108/09544780310469334