Professional Documents
Culture Documents
Home Delivery
Olalekan Akinola, Scott Vanger,Slewyon Yaidoo
INTRODUCTION
The online grocery market itself is defined to include the online sales of
food and drink for in-home consumption, including store-based grocers’
fmcg(fast moving consumer goods) sales online, food and drink specialist
retailers’ online sales, online-based grocers’ sales and online-based food
box delivery schemes(MINTEL 2009).
During the dot com boom, online grocers were the rage and it seemed like
the traditional brick and mortars would go out of business, but after the dot
com bubble burst in 2000, companies like Webvan ran out of business. But
decade’s later online grocery is making resurgence, some of the reasons
for that are consumer interest, technology, convenience etc.
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the chain are local farmers like Cherry Tree Farms and big firms like
Bernard Mathews
Manufacturing: Is the use of machines, tools and labour to produce
goods for use or sale. For bigger firms that have the resources, the
process of purchasing and manufacturing is being vertically integrated and
examples of firms like this are Heinz, Bernard Matthews, and Bowes of
Norfolk etc. But other firms focus solely on manufacturing for retailers and
example of these kinds of firms is Park Cakes which makes own brand
cakes and pastries for retailers like Tesco, Sainsbury’s and Asda.
Distribution: Is a step in the demand chain process which brings goods
and services from those who make them to those who use them. Firms at
this stage in the demand chain are mostly the retailers like Tesco and Asda
and wholesalers like Palmer & Harvey McLane and Booker who in turn
supply the smaller online retailers.
Marketing: This stage in the demand chain is all about identification of
customer needs and the generation of sales e.g. Abbott Mead Vickers
Sales: Sales operations stand at the critical nexus of demand
management, converting marketing “pull” into actual orders and from there
into corporate revenue
Service: The support of customers after the products and services are sold
to them, this is provided by the retailers by delivering the ordered goods to
the final consumers or offering return and refund services if things don’t go
according to plan. Smaller Retailers make use of third party logistics to
provide some these services.
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factors contributing to growth in this sector is the rapidly rising food
inflation, particularly in 2008, whilst dampening demand in volume terms.
Despite its impressive growth, online retailing still accounts for only 3% of
sales of the total grocery sector, making it a niche channel in the broader
context. The sector is dominated by store-based grocers, and Tesco
leading the pack, generating more than two fifths of total sector sales.
Ocado is the odd one out as the only pure-play internet grocer, capturing
12% of the sector to rub shoulders with the second- and third-largest UK
food retailers, Asda and Sainsbury’s. But to get a clearer view of the
market, we will have to analyse the key features in the demand chain. For
this report we will focus on the Demand chain shown in diagram (demand
chain)
Distribution For our chosen demand chain our focus is on ASDA which
has about 24 distribution centres. In its drive to meet customer satisfaction
and improvement of its services, the distribution chain for Asda is growing,
thereby making it easy for have a wider reach to the customers in short
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time. It is technologically dependent in order to tackle the “bull whip effect
“diagram (bullwhip effect) this is situation due to the distortion of demand
information as it is transmitted up the demand chain. ASDA recently
received an award (IGD food industry awards) for their innovation, a
project called ‘Fewer Friendly Miles’ which is targeted towards developing
a sustainable distribution. The aim of this is for a projected savings which
include 3.6 million road miles, 1.8 million litres of fuel and up to £5.2 million
a year.
Marketing & Sales In its determination to keep its market share and
maintaining its pressure on the leading player in this sector, ASDA has
embarked on various marketing campaign, one of such campaigns is the
re launch of the ASDA “chosen by you” range .This is an ASDA own label
that has helped the supermarket post a 1.3% like-for-like sales growth in
the three months to the end of September 2010.Quoting the CEO Andy
Clark he said “ the re launch of the core mid-tier ’Chosen by You’ range
and increased activity around the ASDA Price Guarantee led to a four-fold
increase in weekly comparisons.
Another of such Marketing campaign is the more of a loyalty driven
marketing style, where booklet of vouchers worth £40 are being given
away to customers to spend for every purchase over £40. After that
campaign is over, another campaign, where booklet of vouchers, aimed
more at encouraging customers to buy its own label, branded and
seasonal products will be given to customers. From these campaigns and
other various campaigns it is safe to say that Marketing is growing and in
the face of competition ASDA faces from players in the market it will
continue to grow. Technology i.e. TV, internet, social media is a key factor
in any marketing campaign these days and ASDA has recently developed
the mobile phone application where you scan the barcode of whatever you
want with your mobile phone and then place the order, an innovative way
of making it easy for customers to shop on the go. Especially in this
present climate, when all organisations are going for environmental
sustainability options, promoting their green credentials and asserting the
environmental benefits of online shopping seems to be the best way to go.
Internet-browsing encourages people to go shopping for additional and/or
supplementary purchases (Skinner et al 2004) and online grocery sales
are expected to double to almost £10bn in the next five years, driven by
the increasing use of mobile technology (Baker 2010).
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RAW MATERIALS PRODUCERS and SUPPLIERS OF PRODUCTS INTO THE
DEMAND CHAIN
PRODUCERS
Positions The producers are very vital in any supply chain, because
without them nothing would be supplied to the retailers and a consequence
of that is, high demand and low supply, thereby increasing the price of
goods, but most of these producers are local and small farmers who rely
on the sales of their produce for their livelihood. In a 2003 policy paper, the
UK government’s Department for International Development concluded
that ‘growth in agriculture benefits the poor most… No other economic
activity generates the same benefits for the poor.
In 2006 a report by Oxfam shows, current trends by the TNCs (Trans
National Corporation) are threatening its ability to deliver these benefits to
the famers. The production, trading, manufacturing and retailing of food
and agricultural goods – the ‘agrifood’ chain – is becoming industrialised,
globalised and concentrated. Some of these trends are, because of their
size and power the TNCs,
A. Use and abuse their market power to drain wealth from poor
communities, by engaging in unfair buying practices, fixing prices, thereby
shutting local farmers or companies out of business.
B. Pay low prices to producers and capture the resulting value
C. Marginalise poor farmers and rural workers, by imposing tough
standards that the poor farmers cannot afford to meet. . They force the
costs and risks of doing business onto suppliers, who in turn pass on these
pressures to their workers. This type of relationship fosters frustration and
deep distrust.
However this is not to say that there are no producers or suppliers who are
not successful at what they do, and these producers tend to be key ally to
the retailers in the demand chain, sometimes mergers occur or even a
complete takeover, example of this is the takeover of Bowes of Norfolk by
Cranswick plc.
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Offerings
One of the keys to a successful supply chain performance is a good
relationship between buyers and suppliers, which can foster an improved
cooperation and mutual decision making between the two parties, active
participant supply chain performance improvements can give even a small
company more clout and moving from being squeezed to acting as an
extension of the large company allows the smaller players to be much
more effective. Diagram (Business Relationships.).An example of how a
close relationship works is a case of Procter & Gamble partnering with
Walmart ,The partnership was the first to fully implement ‘‘cross docking’’
where the sales of each P&G item at each Walmart store are transmitted
on a daily basis to P&G. If P&G knows what went out of each store they
know what needs to go in (Vollmann and Cordon 98).
The result of this provides various offerings like faster delivery, friendlier
people, easier credit terms, better service, consistency (lack of variation) of
product, location, branding and brand allegiance, customizing, various
packaging, lot sizes from the supplier
Flexibility Cranswick Plc. is flexible with the range of products the make,
because they have wide range of products and they have recently launched
a new range of products, in partnership with Jamie Oliver. In terms of
volume of its offerings Cranswick Plc. have the capacity to produce quite a
high number of volumes , because of its size, so this gives the company
great opportunity to work with bigger retailers like ASDA and the rest and
also making it competitive. Because of the nature of the home delivery
sector, especially with the fact that, consumer purchasing habits, retail and
internet ordering processes and promotions are changing so frequently and
unpredictable flexibility is a characteristic that is very beneficial to any
organisation .
Cost as part of its strategy to keep it operating cost down and maintain
profitability, Cranswick Plc. decided to vertically integrate the production
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and manufacturing process ,so by this they can have control over both the
purchasing and the manufacturing processes, this gives them the ability to
make easy forecasting and respond to their clients demands , because
they do not have to rely on the performance of the purchasing process,
which can sometimes be disruptive for any organisation and can affect
their relationship with their partners.
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Speed: The speed aspect of home delivery is vital and the most important
aspect because this is the dependant of whether the customer buys online
for home delivery or shops in store. It also has to adapt to its competitor
offering a similar time scale like Waitrose who offer a next day service but
they do charge slightly higher.
Flexibility: Being an online service it is extremely flexible as it means that
anyone can shop 24 hours a day 7 days a week.
Dependability: There are many aspects where the customer has to
depend on the performance of Asda and all there stake holders when
placing an order. The person who picks the products, the packer and the
delivery process. There is also a lot of risk involved as if the products are
not available or the delivery is delayed the customers will be disappointed
and this will in turn affect the performance of Asda.
Cost: Asda is well known for low prices throughout their chain of 376
stores therefore cost is a huge benefit for potential customers. This helps
the performance in the following ways; Asda’s demand is high due to the
low prices and hence they have increased performance due to the level of
orders on a daily basis.
Asda is the second biggest grocery retailer in the UK after Tesco’s. With a
market share of 17.5%, the total consumer spend of Asda is £3,411,938.
These figures are relative to march 2009.
Due to Tesco’s high market share in other areas such as online groceries
retailing Asda had to up its game and to try and boots performance in the
area so in 1998 they launched their new grocery service to try and rival
that of Tesco. However they overestimated demand and subsequently
suffered from losing their new deport in Croydon, London and had to let
many jobs go. But they kept faith, adopted a similar model to that of Tesco
and in 2004 they announced they would increase coverage in the UK from
30% to 35%. Due to the increase in demand in January 2007 they
employed and additional 1,800 new staffs to help with the operational side
of the business; and subsequently increased online market share by 8.6%
and 50% over the year.
After studying some of the latest financial reports from Asda we can see
that a lot have changed and according to internet retailing.net ‘UK sales
on Asda.co.uk could overtake Tesco.com within six months if consumer
trends continue.’ This is very surprising because throughout January 2010
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you can see that Tesco have had the upper hand with a share of 36% to
31%. However you cannot argue that both stores have brilliant online
stores that make it incredibly easy for consumer to purchase products with
thousands of ways to save money!
Therefore we can see that there is a definite drive that Asda wants to boost
performance via there online retailing service, as they are investing large
amounts of money into it to increase financial performance. One way this is
being achieved is via the new online price checker which has reported to
save shoppers over £75m!
OFFERINGS
It is a crucial part of any organization’s operation that they provide a good
relation between them and their customers plus success to the supply
chain. In order for customers to keep demanding products, businesses
should provide offering overtime to persuade customers into doing so.
Examples of some of these offerings are the “Asda price guarantee” which
gives the customers the guarantee that whatever the cost of their weekly
shopping, it will be cheaper than any other of their competitors and if they
are cheaper they’ll refund the difference to the customers, others are the
Asda own brand products which they claim are cheaper and has same
quality as other well-known brands and the time slots that are available to
shoppers online.
Adequate resources are needed to sustain the growth and instability of the market
Finance is crucial for most new entrants as they could be in the red/slow start for
the first few years of operation.
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RECOMMENDATIONS FOR NEW ENTRANTS
Security is a big issue to consumers, new entrants should have a privacy statement
on its web site assuring customers that all information they send is encrypted
Some consumers are reluctant to shop online due to delivery time so an advice to
new entrants would be to make sure that customers’ products should not be
delivered later than expected.
New entrants should also be aware of major players in the market such as Asda,
Tesco, and Ocado etc.
CONCLUSION
In this report, we have factors and the key issues associated with home delivery of
groceries, and made some recommendations in line with our analysis.
The grocery home delivery sector is a sector that is growing and will continue to
grow, however any new entrant into this sector need to be wary of the major
players, because of their capacity.
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