E-grocery Industry in the US

1.1 Introduction and Background

An old Chinese saying goes like this: Food to the people is like people to a king. It means that just like a king has to rely on the support of his people to remain on the throne, ordinary people have to rely on food for survival. The importance of food is universal, and the retail food industry is a vital part of the economic activity of every country.

The food on America’s table is mainly supplied by supermarkets, hypermarkets and discounters. Americans are used to going to these traditional stores in person to buy groceries. With an increasing number of grocers now offer online ordering and home delivery of groceries, Americans are gradually changing the way they shop for groceries. Online grocery retailing is becoming more and more common. New start-up online grocery retailers such as Peapod and FreshDirect are in the market to compete with traditional supermarkets. Some of these new online grocers have support from traditional supermarket chains. Some are “pure-play” or stand-alone grocers that operate their own supply chains and facilities. Traditional supermarkets are also offering online ordering and home delivery to customers as a new distribution channel in a struggle to keep the market shares from being taken away by the new ventures.

Online grocers utilize different operating strategies and business models. History has seen both successes and failures in this industry. Various aspects of online grocery shopping have been studied, but few studies have compared the successful and less successful companies in this industry to identify the characteristics that contribute to these outcomes. By identifying these key variables, this study intends to look for business models that have a better chance of success.

Once considered a symbol of the dot-com crash, the online grocery industry struggles to come back to life. Applying a sound business model and effective operational strategies is essential for the existing players in order to stay competitive and successful. New ventures that intend to join this business also need to come up with a promising plan. This study attempts to add to the body of knowledge and provide insights that might be helpful to these companies.

1.2 History of Home Grocery Delivery

Neighborhood grocery stores have, in fact, offered delivery services since the 19th century. At that time, urban citizens, who did not own horses like the residents of rural areas, had groceries delivered to their home free of charge. Most of them did not own a car until the beginning of mass production of automobiles in 1914. Fifty years ago, Americans were used to having milkmen deliver fresh milk to their doorstep each morning.

In more recent decades, grocers have allowed customers to order and receive their food at home. In the 1960s, third-party companies offered phone-in delivery services for groceries. However, these services were usually short lived. Today’s shoppers are sensual shoppers who prefer to use their five senses in choosing their purchases. Groceries, especially food, are the kind of merchandise that shoppers would want to see, feel, smell, touch, and possibly taste in person before they make the purchase (Underhill, 1999). The convenience of driving their own family cars and being able to really touch and feel the food in big supermarkets made many customers unwilling to take advantage of phone-in services. Lack of profitability has been the biggest problem for these grocery delivery services for vendors. By the mid-1980s, some local grocery delivery services allowed customers to browse product listings and place orders by computer. Marketing strategies used during this time, such as the focus on suburban families and the use of price promotions to attract new customers, would later surface again among the online companies of the late-1990s (“E-Commerce: Online,” 2004).

In 1989, Peapod, an online grocery business, emerged in suburban Chicago. In the days before the World Wide Web, Peapod’s customers used proprietary software and a modem to dial into their systems in Chicago and San Francisco (“Background on Peapod,” n.d.). Peapod partnered with Jewel in Chicago and with Safeway in San Francisco to put together the orders to be delivered to customers (“Peapod company history,” n.d.).

Afraid they were missing out on the market share occupied by Peapod, many grocery stores jumped on the bandwagon of home-based ordering and delivery in the 1990si. Safeway considered expanding their partnership with Peapod to cover a larger part of the Southwestern United States. Other chains linked their catalogues to online content services like Prodigy and used their own employees to fulfill orders. However, by the mid-1990s, it was clear many of the early expectations for the industry would not be met. Grocery chains and stores discovered that online ordering and delivery were not profitable. Peapod relied only on computer-based ordering and experienced growing demand. Sales doubled every year (Funding Universe, n.d.); however, costs also rose, causing Peapod to suffer continuing losses and growing debt.

Peapod saw the rise of new competitors like Streamline Inc. in suburban Boston in 1993. Unlike Peapod’s partnerships with existing grocers, Streamline developed its own warehouses, as well as relationships with wholesalers and distributors. Streamline delivered to their own boxes located in the garages of their customers (Borrego, 2001). By 1996, companies like Peapod, Streamline, and HomeRuns had created their own websites. The World Wide Web had created a common platform in which these companies could build their ordering systems. During the height of the Internet boom, investors poured money into these dot-com ventures. Taking advantage of this trend, HomeGrocer and Webvan joined the field of competitors.

Webvan was started in 1999, offering over 18,000 perishable and nonperishable items. It built highly automated warehouses to process its orders. Webvan allowed customers to schedule a 30-minute window for next-day grocery delivery (Feather, 2001). Webvan had attracted $1 billion of venture capital and had planned to aggressively expand into 26 cities. Founded in 1999, SimonDelivers was another online grocer. It serves the Minneapolis-St.Paul metropolitan area of Minnesota and Western Wisconsin (“SimonDelivers,” 2008).

Expansion did not go smoothly for these new grocers, however. Peapod was suffering cash-flow problems by 1999. It wasn’t until Royal Ahold, a Dutch-based international supermarket operator, came to the rescue with $73 million in 2000 that Peapod was saved from collapse (Lerner, 2002). By 2002, nearly all the leading online grocers (HomeGrocer, HomeRuns, Kozmo, Shoplink, Streamline, Urbanfetch, and Webvan) were gone. The only survivors were Peapod and SimonDelivers. The online grocery industry was crushed. Webvan was the most spectacular failure, having burned through $1 billion of venture capital in just two years despite having what was once considered to be the model most likely to succeed (Porres, 2003). Webvan’s subsequent failure caused many to lose faith in the idea of online grocery shopping altogether. In the early years, overenthusiastic projections of the online grocery industry predicted it would cover as much as 20 percent of all grocery sales by the mid-1990s or 2000. Later, estimates by Forrester Research in 1998 toned down their forecasts, dropping their projections of 2004’s expected online sales to less than five percent of US grocery retail sales (“E-Commerce: Online,” 2004).

Rising from the ashes of the online grocery failures were more cautious ventures in the online world. A scaled-down Peapod, with backing from Royal Ahold, was joined by brick-and-mortar grocers now testing the online waters. Although experiencing some financial difficulty, SimonDelivers weathered the dot-com boom and bust by securing $15 million in funding and focusing on its local market instead of expanding nationwide (Tellijohn, 2000).

1.3 Factors Driving the Popularity of Online Grocery Shopping

In today’s busy world, the time available for grocery shopping is scarce. Americans now work more and thus have less free time. According to a 2008 ranking by the Organization for Economic Co-operation and Development (OECD), Americans are among the hardest working people in the world with 1,797 work hours on average each year (Olson, 2008). For families with children, having to take the kids to the market adds to the stress of the chore. Due to competing demands on their time from work and home, people are more likely to shop for groceries online. Many disabled people rely on online grocery services to fill their refrigerators and because of the quickly aging US population, more elderly people are also likely to be interested in e-grocery shopping. With Peapod operating in the Midwest and East Coast, FreshDirect in New York City, Albertsons and Safeway in the West, Simon Delivers in Minnesota’s Twin Cities area and Shnucks in St. Louis, Central Illinois and parts of Southern Indiana (Fishman, 2005), this revived e-grocery industry has both new and old players that are now attempting to stake out their shares of the online grocery market and working hard to achieve what their predecessors could not. (See Appendix A for a complete list of current US online grocers.)

Scott and Scott (2008) report the following figures regarding the current market size and potential of selling groceries online. The estimated online grocery revenue was $235 million in 1998, $2.4 billion in 2002 and $6.2 billion in 2006; Jupiter research estimates that the percentage of US online grocery sales will rise to 1% by 2009. Manor (2006) stated that industry analysts estimated US online grocery sales would reach $4.2 billion in 2006, up 27 percent from 2005. Despite still being less than one percent of all grocery purchases, online grocery sales are expected to double by the end of the decade.

1.4 Problem Statement

Many consumers welcome the option to shop for groceries online, but they are not yet ready to abandon the traditional in-store method of shopping. Many still consider online grocery shopping too expensive, mostly due to the high delivery charges. Since customers are not able to pick out produce themselves, grocers must be able to convince customers that they are choosing only items of the desired quality.

The logistics of going from the customer making an order to delivery at an agreed upon time requires a great deal of effort.

Many new companies, as well as traditional grocers, have attempted to provide electronic grocery shopping to consumers. Various different approaches to establishing infrastructure, fulfilling orders, and making deliveries have been tried. Margins are very thin; surviving in this industry is tough. Many failed companies litter the history of the industry. Grocers are desperately searching for the best formula for success.

1.5 Purpose of This Study

Although grocery delivery is not a new idea, the electronic grocery shopping business is underdeveloped and still in a nascent stage. This is a very challenging business, yet it offers extraordinary opportunities. Despite the efforts made by the egrocers to implement various service concepts and the interest of consumers in online grocery, not much research has been done in this area. The purpose of this study is to identify successful operating strategies that can be employed by online grocers and less successful strategies that should be avoided.

1.6 Major Research Questions of the Study

This study will attempt to understand the factors contributing to online grocery success by finding answers to the following research questions:

• How should an online grocer’s management function to ensure its success?
• How should an e-grocer expand its business and decide its target market?
• How should an e-grocer put together orders? Should it use central warehouses or the shelves of physical stores?
• How should an e-grocer deliver orders to customers and achieve operational efficiency?
• How should an online grocer’s website function, and how is customer relations management handled?

1.7 Significance and Limitations

The importance of the online segment in the overall retail food industry will be determined in the years to come. Although it presently only accounts for one to two percent of food sales in the US, market share of online grocery shopping may increase due to social and demographic drivers and technological and operational improvements. It has the potential to account for a major percentage of retail food sales if business strategies are chosen wisely in the right environments. Alternately, it may be relegated to the fringes of the grocery industry if the right business choices are not made. There have been many casualties in the history of the e-grocery industry. Today’s survivors and newcomers are all hoping to find the strategies for success. By performing case studies on the successes and failures of a group of selected online grocers, this study hopes to find answers to the major research questions stated above and put together a big picture view of the industry. Some of these companies are still operating, while others have failed. Various aspects of their business strategies will be compared, and an effort will be made to distill the characteristics of these businesses that led to their success or downfall.

This study intends to help the online grocery business learn from the mistakes of the past so that they can increase market share in the future.

The study will be limited to e-grocers that offer online ordering and home delivery/pick-up service with product selections similar to a traditional supermarket— specialty food grocers and companies with restricted selections (such as dry food only) will not be examined.

1.8 Structure of the Thesis

This thesis is made up of five chapters. The first chapter is the introduction/thesis proposal. It gives a historical overview of the e-grocery industry, presents the problem and states the importance of the study. Major research questions are also identified in this chapter.

The second chapter is the literature review which describes the target market of online grocers. The customer base will be reviewed based on demographic, geographic and psychographic characteristics. The literature review also provides information about the state of the market following a chronological and geographical order. The operational aspects of how different e-grocery businesses complete a typical transaction will be described as well.

The third chapter presents the methods used. This study will primarily be an inductive qualitative analysis of the e-grocery industry. This research consists of casestudies of successful and not-so-successful e-grocers. A meta-analysis will be performed to compare various aspects of the e-grocers’ strategies in an attempt to identify patterns and variables that contribute to their varied success levels. The fourth chapter analyzes data. The fifth chapter confers research findings and draws conclusions. It also offers possible directions of future research. 19

Keywords: e-grocery, online grocery business, supermarket, business model, target market, store-pick, online order, warehouse-pick, delivery, customer demand, customer density, cost, investment, knowledge, experience, expansion, Peapod, Tesco, Safeway, FreshDirect, Webvan, Streamline

Chapter Two

The goal of this chapter is to lay out the operational and strategic groundwork for the analysis. E-grocers employ different business models. To make their business models work, online grocers use various strategies and target different markets. Each operational model varies along several dimensions, such as how orders are placed, assembled and delivered. The first part of this chapter presents statistics and descriptions of the electronic grocery industry in chronological and geographical order. The second part of this chapter presents a review of the online grocery industry’s customer base and target market. The third section describes the process of completing an online grocery transaction and how each business model functions differently to fulfill orders. The fourth part of this chapter offers opinions from previous studies regarding the factors contributing to the varied outcomes in the e-grocery industry.

2.1 Industry Overview

Americans are familiar with grocery home-delivery services. This concept has been around in one form or another for decades. In the early days, when not many people had a fridge at home, milk needed to be delivered to customers daily. Milk delivery often occurred in the morning while people were still asleep. Glass bottles or cartons were left at the doorstep. Milkmen even delivered other dairy and farm products, such as eggs, cream, yogurt and butter (“Milkman,” 2008). Although demand for the service decreased significantly during the past 50 years, some people still prefer the old-fashioned way of getting their milk as they think milk tastes better in glass bottles. The milk delivery business is actually regaining some of its lost ground. The United States Department of Agriculture saw three-to-five percent of milk sold in the US delivered to homes in 1995, compared with only one percent in 1993 (Shih, 1995). In the 1950s, groceries could be ordered over the phone and delivered to a customer’s kitchen within an hour or so, free of charge (Underhill, 1999).

American grocery stores used to carry only dry grocery items, such as flour, baking soda, dry beans and canned foods. People bought fresh produce and meat from specialty food retailers like butchers and greengrocers. These stores were often located near one another for shoppers’ convenience. Starting in the 1920s, chain grocers experimented with consolidating smaller stores into larger ones with meats and produce along with the dry grocery items. As a result of this consolidating process, by the 1950s, there were much fewer neighborhood stores but more larger supermarkets and shopping centers that people had to drive some distance to go to (“A quick history,” n.d.). Fewer grocers offered home delivery after this period, as Americans enjoyed driving their family cars to shop in large, well-decorated supermarkets and spending some leisure time at the urban and suburban shopping centers.

Even before the World Wide Web ever existed, getting groceries online was made possible by dialing into grocers’ servers with special modems provided to customers. Independent online ordering and home-delivery grocery companies like Peapod began to emerge in the US retail food industry. Food retailers like these were referred to as pure-play e-grocers because they only sold groceries online and had no storefronts. The development of the web provided a whole new platform for online ordering of groceries. More pure-play e-grocers jumped into the market. Among these companies were Streamline, HomeRuns, HomeGrocer, Kozmo, Shoplink, Urbanfetch, Webvan and SimonDelivers. Fearing of missing out on the market share occupied by pure-play e-grocers, traditional supermarkets also began to offer grocery delivery service. For example, Sandoval (2002) described Safeway’s reentry into home-delivery, with experienced UK major e-grocer Tesco by its side. (In 1990, Safeway had started a delivery service, but discontinued it after just two years.) From the emerging of Peapod in 1989 to Webvan’ s grand entry in 1999, the online grocery retailing industry seemed to be very promising.

Industry expectation for the e-grocery sector was optimistic at the time. According to LeClaire (2002), Forrester predicted that 14 million households would eventually buy at least some of their groceries online. Jupiter predicted that sales would reach $11 billion in a few years. Datamonitor reported that the online retail food and beverage market in the United States was worth $2.1 billion in 2001 after growing 43.5% that year (“United States – Online,” 2002). The growth rate slowed from a high in 1999, when the market had grown by 131.6%. Datamonitor predicted the value of the market to increase to $49.9 billion by 2007 (“United States – Food,” 2003). At the time, Webvan accounted for 30.9% of the market volume, followed by Peapod with 28.3% and GroceryWorks with 12.7%.

However, problems with customer retention and revenue generation in the pureplay businesses led to a big shakeout in the US online grocery industry. Most of the independent online grocers shut down their websites permanently by 2002. Only Peapod and SimonDelivers weathered the dot com crash and survived. Brick-andmortar stores continued to offer online grocery service and soon took the lead. Later came some new players into the market. FreshDirect (founded in New York City in 2002) was one of them.

2.2 Customer Base/Target Market

2.2.1 Demographic Characteristics

According to Buy4Now, an internet shopping service, 80% of online grocery shoppers were 29 to 50 years old in 2002. Seventy-four percent (74%) of the respondents were female shoppers (“Typical Customer Profile,” 2008). According to eGroceryUSA.com (“Typical Customer Profile,” 2008), three categories of people are the major users of online grocery services: affluent shoppers pressed for time, families with young children, and people who can’t easily get to the store. The first category is people who have higher incomes and less time. These shoppers are usually technology-savvy, heavy internet users who are single or have a dual-income family with no kids. These big spenders prefer to pay someone else to do grocery shopping for them. The second group consists of families with young children. They comprise the largest number of online grocery shoppers. A typical e-grocery shopper in this category is 29-to-50 years old with one or more children and at least one child under the age of five. They normally would cook family dinners, and, therefore, are regular grocery shoppers with above average spending. People in this category expect to save time and avoid the hassle of dragging kids along for grocery shopping (“Typical Customer Profile,” 2008). The third group is relatively small compared to the first two. They are older or disabled people and those who find going to a grocery store difficult. People are living longer than ever. In 1960, life expectancy of the US population was only 69.7. The number increased to 73.7 in 1980 and 77 in 2000. The projected life expectancies for the years 2010 and 2015 are 78.5 and 79.2 respectively (U. S. Census Bureau, n.d.). Older people may need some form of help with grocery shopping when it becomes difficult for them to drive to supermarkets and carry heavy items home. Online grocery shopping can be a good alternative to hiring personal helpers. For disabled people and others who are physically challenged (temporarily injured, bed-resting, etc.), online ordering and home delivery of groceries would also be of great help.

2.2.2 Geographic Characteristics

Sandoval (2002) quoted analyst Robert Rubin saying that average American cities are less densely populated compared to ones in the UK, which means high fuel costs will hurt even more when it comes to grocery delivery. Rubin believed Americans are more likely to drive to the grocer because of the more entrenched car culture. The UK (248 per sq. km) had 8 times the population density of the US (31 per sq. km) in 2004 (“World Population Prospects,” n.d.). Tesco has been having a relatively successful online grocery operation in the UK. This led to the idea that US online grocers should aim their target at large urban areas with higher population density for more potential customers.

In these urban centers, people reside closer together. Less people own family cars in large cities. The dependence on public transportation, more crowded shopping environments, busier lifestyle and higher income make many urban residents favor online grocers over personally going to traditional grocery stores. According to Mclaughlin (2005), Richard Braddock, who was appointed chairman of FreshDirect.com in 2005, mentioned that FreshDirect would look for cities that are similar to New York to expand its business. Those are cities with a high percentage of internet usage, a high number of residents per square mile, and residents with a good deal of disposable income. He suggested that FreshDirect would not expand to the whole surrounding area of New York. Instead it would expand from one urban population center to another to make sure its delivery trucks could make as many deliveries as possible every time they stopped.

2.2.3 Psychographic Characteristics

Fox and Kempiak (2006) pointed out that out of MyWebGrocer’s five critical elements that decide whether a consumer shops for groceries online (price, ambiance, convenience, service and product variety), e-grocers have advantages in ambiance, convenience, and service. Fox and Kempiak stated that changing family structures and increased work hours have made consumers busier, more time-starved, richer and more impatient with time-consuming tasks like grocery shopping. Because of these social and attitudinal changes, many people are more likely to be attracted to convenient, dependable alternatives for the recurring chore of grocery shopping. This makes the e-grocery service more appealing for consumers that fit this profile. Consumers with certain disabilities that make in-store grocery shopping hard are another major market for e-grocers.

The ease of shopping from home and the time saved are two of the reasons some prefer buying online. Gennifer Calise, a working Manhattan mom, admitted that she would not want to lug her ten-month old son to the grocery store and lug him back.Instead, she can stay home and play with him on the floor and be clicking online at the same time. With both a child and a full-time job, she said she did not want to do anything that wasn’t easy (Koeppen, 2006). Similarly, Sietsema (2007) stated that those who worked long hours at the office and had little time for everyday life were delighted to be able to not have to go to a grocery store.

Anckar et al. (2002) stated that the ability to shop from any place, at any time, was an undeniable convenience offered by e-commerce. The status of grocery shopping as an undesirable chore for many people makes it ripe for online efforts that can offer both speed and convenience. Time and convenience have been cited as the principal reasons for purchasing groceries electronically in a study by Morganosky and Cude. With the technology available online, general purpose grocers can easily become specialty grocers tailored to the individual needs of customers with allergies that require a special diet or people with different food preferences, like organic, ethnic, religious, or gourmet items.

Scott and Scott (2008) state that by changing and reusing previous shopping lists online, consumers save time. Customers become familiar with the e-grocer’s website fairly quickly. The average ordering time is only 20 minutes versus 60 minutes when a customer shops online for the first time. The benefits of buying groceries online include the ability to establish, save and modify shopping lists online over time, emailing shopping lists to other family members, getting personalized coupons, sorting items according to nutritional information provided and automatically ordering all the ingredients for a certain recipe.

Bates and Lauder (2008) pointed out that customers are often not loyal to just one particular retailer. They can be loyal to several retailers at the same time. These retailers share the spending of each customer. Therefore, the goal of competition becomes maximizing the wallet share a retailer could possibly get from each customer. Offering online grocery shopping to customers as a new distribution channel has the potential to gain a greater wallet share for a grocer.

Bates and Lauder (2008) also believed that the market adoption rate is another influencing factor that decides how many customers an online grocer can attract. Customers adopt online grocery services at different rates and at different times. Due to Webvan’s failure and the dot com meltdown in 2000, the natural evolution and adoption process were set back for years, both for potential customers and for grocers. Bates and Lauder used the figure in Appendix B to show the adoption process being extended. Fox and Kempiak (2006) brought up some major concerns that prevent some consumers from choosing to buy groceries online. These concerns included delivery time and methods, quality of produce, a limited variety of goods, and the security and privacy of online shopping. Anckar et al. (2002) considered the fear of receiving lowquality goods to be a potentially important obstacle to purchasing food online. Some customers fear that store employees may not pick the freshest produce in an attempt to minimize storage losses or maximize picking speed.

While some people consider grocery shopping a burden, there are still a lot of food lovers who enjoy their trips to traditional grocery stores to actually touch and handpick everything they are buying. Online grocery shopping is just not the right experience for them, and, therefore, does not satisfy their needs.

When Scott and Scott (2008) described the resistance to online grocery shopping, they mentioned that customers may not be willing to pay the delivery fee. It is also hard to change the established shopping habits of consumers. Customers might not like the long lines at the registers of traditional grocers, but that does not necessarily mean they are ready to give up standing in them right now. The cost involved in the acquisition and retention of customers tends to be high, because once consumers have a negative online grocery shopping experience, they may not buy groceries online again and tell their acquaintances not to try the experience.

2.2.4 Technological Characteristics

The internet makes online grocery shopping viable. According to Fox and Kempiak (2006), the Food Marketing Institute (FMI) indicated that 86% of US consumers go online or use their computers every day. Seventy percent (70%) of them shop online frequently. While in the UK, broadband use is ranked number two in Europe and number five in the world. This has been a boon for online businesses in the UK 15.9% of the respondents of this research bought groceries online at least once a year. 3.2% used e-grocers at least once a week. 2.7% used them two or three times a month. 4.5%, the largest group, used an e-grocer once or twice a year (“E-commerce: The Internet,” 2007). The increasing rate of internet usage likely contributes to the rising number of consumers who purchase groceries online.

According to Foley et al. (2003), online shoppers actually had habits different from their unwired counterparts. Online grocery shoppers made fewer shopping trips per month (for all goods) and spent more per trip than those who did not shop online. Online orders tended to be larger than in-store purchases. At Tesco, for example, instore purchases averaged £21 (about $33), while online orders averaged £85 (about $136). Online shopping households averaged nearly $10,000 more in annual income over offline ones – at a little over $70,000 per year.

2.3 e-Grocery Shopping Process and Various Business Models

The process of buying grocery online consists of several major steps. They are ordering and payment, order-picking/ assembly and order delivery/ pickup. (Appendix C shows the process of e-grocery shopping in a figure.) Although all e-grocery transactions have these basic activities, e-grocers vary in how they carry them out.

2.3.1 Online Ordering

A consumer who intends to buy groceries on the web would first go to an egrocer's website to enter the zip code of the intended delivery address. The e-grocer's website would tell the consumer whether home delivery or in-store pick-up is available for the address or surrounding areas. If the service is available in the area, the customer is directed to the proper page where he/she can register with the e-grocer and create an account. Then he/she can start to browse product selections and choose delivery time slots.

E-grocers' websites often offer multiple ways of finding what a consumer wants. For example, a consumer can use the search button to search for a particular item. Alternatively, the e-grocer may offer an option to search for multiple items on a shopping list simultaneously. A page will appear that allows the customer to type in what he or she wants. The shopper can either search brand names or general item names. On the search results page, the customer can further browse all the items found and make a decision. The website may also allow browsing selections by aisle. All categories/aisles are displayed, each containing items of different brands. A consumer can also store shopping lists on the website and modify the lists anytime. Items on each list can be automatically added to the virtual shopping cart. Many e-grocer websites also offer recipes to allow customers to add all ingredients of a certain recipe to the shopping cart with a click of a button. Weekly specials are easy to find, often on the home page. E-grocery shoppers also need to decide whether they want the groceries to be delivered or picked up from a store/warehouse if this option is available. Customers pay for the entire order using their credit or debit cards.

2.3.2 Order Picking

Once an online order is received by an e-grocer, the items will typically be picked and put together before midnight the day before the scheduled delivery/pick-up date. Order picking methods are different. Some e-grocers have built their own automated, independent warehouses to store and pick orders. Each warehouse may cost millions of dollars to build and offers high picking-efficiency with miles of carrousels sending bins of products through different picking zones. For example, Webvan built highly automated central warehouses which cost $35 million each. These futuristic warehouses had motorized carrousels and robotic product-pulling machines to help increase picking efficiency and offset delivery costs (“Webvan finds that,” 2001). Others pick orders in traditional supermarkets. Some have supermarket employees use specially-designed carts to pick orders directly from the shelves of traditional grocery stores. Some pick orders from a backroom attached to a supermarket. This method is less efficient than warehouse picking, yet with less order volume, picking from stores often offers more flexibility and less upfront cost to an e-grocer. For example, Webvan's Oakland warehouse, which was capable of handling 8000 orders a day, would need at least 3000 orders to break even. Yet it only processed 2160 orders a day in 2001. Running far below its designed capacity meant that it was actually losing money every day (“Webvan finds that,” 2001). The items in each order are then separated according to their different temperature requirements and packed into different boxes or totes for delivery and pick up.

2.3.3 Order Delivery/Pick Up

Orders that are packed will be transferred into delivery trucks or a room for pick up. Temperature-controlled delivery trucks are used for groceries delivered in ordinary boxes and bags. Some e-grocers use insulated bags/boxes with dry ice or ice packs to keep groceries at the right temperatures. Deliveries are made according to the methods chosen by customers while ordering. Some are unattended deliveries. The customer does not need to be home to receive groceries. The order can be left in a designated area outside of the residence in insulated containers. The area is often out of direct sight from the street to avoid theft. Some companies, such as Streamline, owned reception boxes and rented them to customers to use in households for unattended delivery. Shared reception boxes at a shared pick-up point near the consumer were also offered by some e-grocers (Kamarainen, n.d.). For attended deliveries, someone needs to be home during the chosen window of delivery to sign for the delivery. Delivery drivers can help bring items directly to the customers' kitchens. Pick-up services are available from some e-grocers in longer time frames. Customers would need to go to the e-grocer's facility, either a supermarket or a warehouse, to collect their orders. Research indicated that the way e-grocers get goods to customers has a great impact on the efficiency of the entire business model. Using reception boxes could mean a major cost advantage over attended delivery. The cost can be over 40 percent less when reception boxes are used, because of the wider delivery window made possible by the reception box. Delivery routes can be better planned and delivery workloads can be better distributed during the day to minimize costs due to the wider delivery window (Kamarainen, n.d.). Having a reception box involves some cost for an e-grocer and its customers. Using insulated containers or insulated bags is another way utilized by e-grocers to offer unattended delivery, but collecting delivery bins adds to the cost.

Time slots for attended delivery are pre-selected by customers at the time of ordering. Some time slots are shorter and more popular and thus are offered at a higher delivery fee to level out demand peaks, which are mostly during late afternoons and weekends.

2.3.4 Business Models

While there are strategic variations within each business model used by different e-grocery companies, there are two predominant models in the online grocery business. Pure-play model — Pure-play e-grocers are companies that do business only online, without any connections to brick-and-mortar retail outlets. They operate their individual websites. Automated warehouses are built for order picking. They order food items directly from farms, dairies and fisheries to get fresher goods at a lower price or order from middlemen. Goods are stored, picked and assembled in central warehouses which are designed for efficient order picking and packing. Some e-grocers using this model can even custom prepare food to order right on the premises (“Our promise: higher,” n.d.). Deliveries are made from the warehouses, or orders can be picked up from their central location. Some pure-play e-grocers offered reception boxes installed outside of customers' residences for order delivery. Companies using this model include Webvan, Streamline, and FreshDirect.

Brick-and-mortar (B&M) model — Online grocers that use this model are traditional “brick-and-mortar” supermarkets adding an online shopping service. They utilize the buying power and suppliers of the supermarkets. Goods would come from suppliers to the shelves or backrooms in a traditional supermarket. Then designated pickers who are employees of traditional grocery stores would assemble orders for online customers. E-grocers using this model often have several stores as designated order-fulfillment stores. Each region has such a store to take care of order picking. Deliveries are made from these stores to their customers in the surrounding area. Brickand- mortar e-grocers include Safeway, Albertson's, and Tesco in the UK. Some companies pursue a combination of both of these two business models. For example, Peapod uses the brick-and-mortar model in most markets by working with subsidiaries of Royal Ahold. However, in Chicago and Washington, D. C., Peapod operates two free-standing warehouses for order picking and deliveries (“PEAPOD LLC Corporate,” n.d.).

2.4 Opinions from Previous Studies

The success level of e-grocers varies. Some have disappeared completely. Some of them remain operating in limited regional markets. Some of them are already serving multiple markets nationwide. Some claim they have reached profitability. Some are just hanging on while continuing to lose money. There have been multiple explanations offered by analysts for the success or failure of e-grocers, but no consensus has been reached.

2.4.1 Factors for Success

Various researchers expressed their opinions on the factors that have a positive influence on the operation of e-grocery businesses.

One proposed success factor is experience in food retailing and possession of a strong brand name already familiar to shoppers. Traditional grocers already know the food retail business. They have established relations with suppliers and a large amount of buying power. Customers already shop in their physical stores. Mitchell Rhodes, president of GroceryWorks (the online division of Safeway), believed that the online division was valuable for promoting the grocer's brand (Guynn, 2003). Conversely, Fox and Kempiak (2006) and LeClaire (2002) believed that the brand helped promote the online division of the brick-and-mortar grocer. Fox and Kempiak also agreed with LeClaire that the past business experience and infrastructure of brick-and-mortar grocers were great advantages.

Another factor contributing to success in the e-grocery business is believed to be the ability to spend the most for the longest. Regan (2002a) believed that even with the new model of tying online ordering to brick-and-mortar stores, it will still be the company that can spend the most for the longest that will emerge the winner. While Tesco has succeeded in the UK, tailoring its system for the US will take time and money. Given enough time and money, even the failed pure-play groceries may have succeeded. According to Regan, the competitive landscape of today's online food retail market remains the same in that it will belong to the company that can stay in the game the longest. If the Internet division of an established grocer is dragging down profits, its parent company may not let it continue for very long, which means they are no safer just because they are tied to profitable businesses. Without demand for these services, this new wave of online grocers will follow the previous wave into failure. Good customer retention strategy is also important to an e-grocer's success. Consumers complete 60 percent of their shopping within a single grocery chain. To capture the loyalty of customers, e-grocers need to reward shoppers who stay with them. Vigoroso (2002a) reported that Safeway will give online customers access to their in-store purchases. Customers will also be able to earn savings awards and United Airlines miles.

Cautious investment strategy and growth plan are the key. Brick-and-mortar stores utilize their existing infrastructure to save on costs. Delaney-Klinger, Boyer, and Frohlich (2003) stated that Tesco succeeded where Webvan failed because it marketed its online division as a value-added service and charged extra for delivery, which served to make up for the part of the costs of getting the ordered goods to the customer (pricing strategy). Though Tesco's strategy of putting together orders at their stores meant a higher cost per order than Webvan because of the lower picking efficiency, it was more suited when sales volumes were lower. Mike Patton, president of the Northern California division of Albertsons, illustrated a cautious strategy when he stated that Albertsons was moving into areas with the greatest amount of Internet usage and with customers that have specifically asked for an online grocery service (Vigoroso, 2002b).

2.4.2 Factors for Failure

Some factors may have a negative influence on e-grocery businesses. Low level of customer demand for e-grocery was a problem found by many analysts. Sandoval (2002) mentioned that analyst Robert Rubin thought online-only businesses were doomed to failure because only a quarter of online grocery customers order more than once per month. There was simply not enough customer demand to sustain the size of the investments needed to start delivery businesses. Pure-play grocers spent huge amounts of money on building highly-automated warehouses only to find that these warehouses were operated at half of their capacity. Order volume was simply too low to make their businesses profitable. According to Anckar et al. (2002), Ring and Tigert believed that one of the reasons for the failure of pure-play online grocers was because pure-plays greatly overestimated the demand for Internet-based grocery retail. High start-up cost was blamed for many pure-play e-grocers' failure. According to Delaney-Klinger et al. (2003), although in theory warehouse-based grocers could cut costs related to providing a better shopping atmosphere for customers and design storage to maximize order-picking efficiency, the strategy required expensive expenditures of capital that in the short run increased the cost of business, whereas using existing stores to put together orders meant lower initial costs. High start-up cost resulted in being heavily leveraged and at a higher risk.

Another factor for failure suggested by analysts was that the management of some e-grocers did not have sufficient experience and knowledge in food retail business. Alsop (2001) believed the reason for Webvan's failure was less a problem with its concept and more a problem with its management. Management problems started at the top when Webvan hired a consultant (George Shaheen from Andersen Consulting) as CEO instead of someone with experience in food retail. Irrational spending was another factor contributed to failure. According to Alsop (2001), Webvan's spending patterns were more in line with that of the dot com mania of the time rather than the disciplined frugality of real groceries. For example, it embarked on a rebranding campaign after just two years and repainted its delivery vans, spending money that was not directly related to making the business work. Webvan was building too many facilities before it had figured out all the problems with their design and, therefore, was forced to reconfigure every warehouse instead of first fixing the problems in one warehouse before building any others and then applying the experience afterwards to build in efficiency from the start. Webvan's ambitious plan of expanding to 26 markets in a short period of time also sped up its failure. Fox and Kempiak (2006) expressed their concerns with the pure-play online grocery business model. They pointed out that today's lack of capital investors for these dot com ventures make it very difficult for these independent pure-play e-grocers to survive. Research also indicated that some pure-play companies relied too much on technology. They did not concentrate on building a relationship with customers or establishing a consistent company image. Traditional supermarkets have advantages in this area (Lunce, Lunce, Kawai and Maniam, 2006). Lunce et al. (2006) also pointed out that Webvan shouldn't have re-branded (by switching from a grocery service to a general delivery service) two years into its existence and wasted previous marketing campaigns. Webvan did not attempt to offer any incentives to encourage the usage of unpopular delivery time slots until very late in its business downfall. Webvan's later decision to sacrifice product quality to cut costs also further weakened its bond with its main customer population.

2.5 Summary

So much has been said about various business models and companies. Researchers have looked into many specific aspects of e-grocery business operation, but to date, no one has systematically compared these organizations to identify characteristics and strategies that contributed to these outcomes. The online grocers provide a service that many consumers welcome. The potential of this industry is still yet to be reached. JupiterResearch, a market research firm, predicted online grocery sales will grow by 17 percent in the next five years and reach $7.5 billion by 2012 (“Online Grocery Sales,” 2008).This study is intended to be useful to food retailers in the e-grocery industry, as well as to those contemplating entry into the industry, in choosing successful business models and strategies.

Chapter Three

In the previous chapter, various operational aspects of e-grocers were identified. This chapter covers the methodology and data analysis. 3.1 Research Approach and Method The research design of this study took a qualitative, inductive approach to data collection and analysis. Case studies from secondary source material were analyzed to detect patterns of e-grocers' business models and strategies, which will be used to develop a grounded theory of success factors in the e-grocery business. A metaanalysis of selected e-grocers/cases was performed to reach this goal.

3.1.1 Case Study Method

Experiments, surveys, archival analysis, historical analysis, and case studies are the five major investigative strategies used in social science research. According to Yin (2003), there are three conditions that distinguish the five research strategies: the kind of research question asked, the degree of control the researcher has over actual behavioral events, and the amount of emphasis on current, as opposed to past, events. Case study is a qualitative approach to carry out scholarly research. In general, it is desirable to use case studies as the strategy when “how” or “why” questions need to be answered, when the researcher doesn't have much control over the events, and when studying a current phenomenon within a real-life scenario (Yin, 2003). Also, it's used when conducting exploratory research, which lacks the benefit of conceptual/theoretical frameworks.

This study intends to investigate how the e-grocery businesses survive in difficult market conditions. It also wants to understand why the major current players in the e40 grocer business have managed to continue operation, while many others have failed. In addition, during the process of conducting this study, although the cases can be chosen, the actions of the companies or the strategies they are utilizing are not directly controlled by the researcher. Furthermore, this research studies the e-grocers' strategies under the current conditions of the market. For these reasons, the case study method is the best fit for this research.

3.1.2 Meta-Analysis

This study is a qualitative meta-analysis of case studies of selected e-grocery companies. Answers to the set of major research questions described in section 1.6 provided the qualitative data from each individual case (Lyons, 2003). The data accumulated across the cases/e-grocers were then analyzed to find possible relationships between the strategies/business models and the different outcomes of these e-grocers.

No single case can be considered a definitive example of the success or failure of e-grocers. Because there are a variety of business models featuring many different strategies, this study drew data from a wide range of cases. The meta-analysis method utilized the qualitative data gathered from multiple e-grocers to look for patterns of common operational characteristics and strategies among successful and unsuccessful e-grocery businesses. This systematic approach of making cross-case comparisons of the various business practices that led to varied results is appropriate for this study. There are some drawbacks to the meta-analysis method. For example, since the meta-analysis relies on the data from multiple cases, the quality of the analysis depends on the quality of data from each source, something which cannot be controlled by the researcher. While some companies may have been using similar strategies, they are rarely identical. The details within each aspect being examined might vary. There is no common agreement on the approach to analyzing data for a meta-analysis (Graney and Engle, 1990). This study relies on a good deal of historical data from various resources. Efforts were made to use information corroborated by multiple sources. Each major research question deals with one specific operational aspect of an e-grocer. These research questions define the criteria of interest in the case studies.

3.2 Cases/e-Grocers Examined

As Huberman and Miles (2002) noted, selection of a proper population helps the control of extraneous variation and sets the limits for the generalization of the findings. The case selection should not be random, as this is neither necessary nor preferable. Each case has been chosen to carefully provide a replication of other cases, to expand growing theory or to present examples of theoretical categories and polar types. Such a theoretical sampling, instead of statistical sampling, offers a foundation for the analytic generalization of theories in a case study. Each research question deals with a set of characteristics of an e-grocer. Because each case examines a single company according to the characteristics indicated by the research questions, these characteristics become units of analysis embedded in the case study. This is illustrated in Appendix D (Yin, 2003).

This study examined several e-grocers, which included both relatively successful and unsuccessful companies. Since most of the e-grocery companies are private companies that do not publicly disclose their financial data, and the public listed brickand- mortar grocers do not separately disclose the financial data of their main operations and online divisions, the relative levels of success were judged based on each company's years in business, whether it has reported profitability, whether it is currently expanding or its percentage of market share.

Online grocery retailing is now offered in many parts of the US (“Who Is Offering,” n.d.). Currently, most online grocers are still operating with a limited geographic scope. Only a few names stand out when we count e-grocers that are apparently healthy and expanding. Among them, Peapod has been in e-grocery business for 19 years. It survived the dot com crash and is going strong with an annual growth rate of over 25 percent. Peapod currently delivers to 1,500 zip codes and over 12,700,000 households in metro areas in the Midwest and along the East Coast (“PEAPOD LLC Corporate,” n.d.). According to Safeway's 2007 Annual Report, Safeway Inc. is one of the largest food and drug retailers in North America, with 1743 stores in the Western, Southwestern, Rocky Mountain, Midwestern and Mid-Atlantic regions of the United States and in Western Canada, as of December 29, 2007 (Safeway, Inc., n.d.). Safeway now delivers e-groceries in 9 states in the US It offers a wide variety of both perishable and nonperishable items. Pure-play e-grocer FreshDirect first introduced its service in New York City in 2002 and gained popularity quickly. Now it has become a major player in the New York and New Jersey online grocery business and has achieved profitability (Schoenberger, 2006). In the UK, Tesco, PLC operates the world's largest online grocery service. It has over 30% of the UK grocery market, approximately equal to the total share of the next two largest chains (Asda and Sainsbury's) combined (“Tesco,” 2008). In 2002, Tesco was the first grocer to make online operations profitable (Cheyfitz, 2003). Peapod, Safeway, FreshDirect and Tesco are relatively successful in today's e-grocery retailing industry.

Webvan was the most spectacular failure of US online grocery business. It burned through $1.2 billion in its short life span of 2 years and filed for bankruptcy in 2001. It offers many lessons to be learned by researchers and the businesses still operating today. Streamline.com Inc. was the second to enter the US e-grocery retail business (the first was Peapod). Its operation lasted for 7 years until it closed its business in 2000. Despite of being one of the pioneers of US online grocers, Streamline was a pure-play e-grocer that was never able to break even, making the company unable to secure the capital needed to remain in business (McCormick, 2000). Webvan and Streamline are two examples of e-grocery failures.

Peapod, Safeway, FreshDirect, Tesco, Webvan and Streamline are the firms examined in this study. The combination of successful and not-so-successful e-grocers was chosen to help this study find a winning combination in today's online grocery retailing industry. Sources of data include annual reports and other data made public by the companies involved, news and trade articles, published studies, and industry research.

3.3 Data Analysis

According to Booth (2001), a qualitative meta-analysis is very different from a quantitative meta-analysis. Commonly used analysis techniques of quantitative metaanalysis (such as the use of software like Meta-stat) are not suitable for qualitative meta-analysis, because qualitative analysis is not primarily concerned with statistical exactness or representativeness. No attempt was made to sample or represent all views on the topic, but rather specific cases were found that possess characteristics relevant to the issue being studied in order to identify patterns and any possible “noise” which may lead to competing theories.

Previous sections of this study discussed operational aspects of the e-grocers. A set of research questions was used to identify the relevant operational aspects. These characteristics are the information that was extracted from each case examined. The data were then put into a matrix for comparative purposes; patterns of common criteria and strategies among successful and unsuccessful businesses were subsequently identified. Particular attention was paid to any sign of disconfirming evidence that may lead to different explanations.

3.4 Validity and Reliability

The type of validity that is relevant to qualitative, inductive research is face validity. It involves showing the research to people who are very familiar with the research topic and ask whether the findings/grounded theory are accurate. If they agree that the research looks sound, researchers can be reasonably certain that the study has achieved an acceptable level of face validity. If possible, the researcher would share the findings with professionals or experts in the e-grocery business and get their reactions to test the validity of this research.

Reliability refers to the consistency of the study's results. Another researcher following the same procedures and looking at the same e-grocers should be able to reach the same conclusions. This study will make efforts to document and present its data in a way that allows reviewers to follow the inductive approach of this investigation. However, in case studies of e-grocers' operating behavior and performance, many factors will be constantly changing. For example, business models and competitive strategies may change when the market conditions change or when major technological advancement occurs. This research was performed within the contemporary time frameand the context of present online grocery market conditions. This may limit the ability to generalize findings of the study.

Chapter Four

In this chapter, each case (individual online grocer) is examined for factors implicated in business model success or failure. The data are analyzed to find any patterns that appear.

A summary of the data collected is presented first. Section 4.1 investigates the online grocery companies' management competencies; Section 4.2 examines the major strategic expansion and market selection decisions they made; Section 4.3 focuses on logistics and examines how the companies handle inventory control and order fulfillment; Section 4.4 examines delivery strategy; Section 4.5 evaluates web design and customer relations management; and Section 4.6 compares strategies across the cases. The findings of this research will be presented after conducting a cross-case analysis of data.

4.1 Management Core Competencies

This section looks into the experiences and knowledge in e-grocery business or in general traditional grocery industry each e-grocer's management team possesses and how this affects managerial decision making.

4.1.1 Peapod

Peapod was founded in 1989 by brothers Andrew Parkinson and Thomas Parkinson in Evanston, IL. The Parkinson brothers combined their backgrounds in consumer product marketing and technology and started Peapod to serve busy families. At first, customers had to use Peapod-provided software and modems to dial into its shopping system. From 1990 to 1996, Peapod operated its business by fulfilling orders through partnerships with local grocery stores. It has worked with Jewel Food Stores in the Chicago area, Safeway in San Francisco, the Kroger Company in Columbus, Ohio and Stop & Shop in the Boston metro area. In 1997, Peapod launched its own website www.peapod.com on the internet. Peapod listed its shares on NASDAQ through a successful initial public offering. Years 2000 and 2001 were crucial for Peapod's growth. In June 2000 Netherlands-based international grocer Royal Ahold took 51% ownership of Peapod. Marc Van Gelder joined Peapod from Stop & Shop, a subsidiary of Royal Ahold, to be the president and CEO. In August 2001 Peapod became a wholly-owned subsidiary of Ahold and started a long-term exclusive partnership with Royal Ahold-owned grocery stores in the US. In 2003 Peapod achieved profitability in four out of five markets. Later, Andrew and Thomas Parkinson were re-appointed as Peapod's President and CFO. Today's Peapod, having the grocery industry know-how from Royal Ahold combined with infrastructure support through Royal Ahold's physical stores, has achieved an annual sales growth rate of over 25 percent and has become one of the most prosperous online grocers in the United States (“PEAPOD LLC Corporate,” n.d.).

4.1.2 Tesco

Tesco is a UK-based international grocer and general merchandising retail chain. It was founded in 1919 by Jack Cohen. Tesco now has turned from the simple stall in the East End of London into the largest British retailer with profits exceeding £2 billion worldwide. As of March 2008, Tesco has a store in every postcode district of the United Kingdom with the exception of Harrogate.

Tesco.com was officially launched in 2000 to offer groceries online. Tesco.com now completes over 250,000 online orders each week (Tesco, 2008). Its service has been popular and profitable. It is the largest online grocery service in the world. The strength of Tesco.com lies with its well-established supplier and distributor network. Its tremendous buying power as the biggest player in the UK grocery industry, mature infrastructure consisting of near 2000 stores and an unbeatably wide range of products have helped it become a successful online grocery pioneer.

4.1.3 Safeway

Safeway has been in the grocery business for nearly a century. M.B. Skaggs bought a single tiny grocery store from his father and expanded his business to 428 Skaggs stores in 10 states. He later merged his company with 322 Safeway stores and listed Safeway on the New York Stock Exchange in 1928. According to Safeway's 2007 Annual Report, as of December 29, 2007, with 1743 stores in the Western, Southwestern, Rocky Mountain, Midwestern and Mid-Atlantic regions of the United States and in Western Canada, Safeway Inc. is one of the largest food and drug retailers in North America.

When it comes to offering online grocery shopping, Safeway utilizes its extensive network of distribution, manufacturing and food processing facilities and stores to provide infrastructure support. It also learned from the most successful UK online grocer Tesco through a prior alliance venture together. In summer 2001, Safeway made a deal with Tesco, Britain's biggest grocer, to start its online grocery shopping service in the United States. Tesco brought its technology and proven online know-how into an online grocer named GroceryWorks, which was majority-owned by Safeway. GroceryWorks became the exclusive channel of Safeway's online grocery service under the names Safeway.com, Vons.com and Genuardis.com. It became Safeway's wholly-owned subsidiary in 2006.

4.1.4 FreshDirect

FreshDirect was founded by Joe Fedele, a co-founder of Fairway Market, and Jason Ackerman, a former investment banker who specialized in the grocery industry. FreshDirect first introduced its service in New York City in 2002 and gained popularity quickly. Now it has become a major player in the New York online grocery business and has achieved profitability. FreshDirect learned its lesson from online grocers that failed before and assembled a management team that has grocery, restaurant and financial experience. FreshDirect gets its food directly from farms, dairies, and fisheries to eliminate middlemen. The result of an efficient supply chain is fresher food at lower prices (up to 25% less than supermarket prices) (“FreshDirect Is,” 2008). Since FreshDirect has no retail location, the company does not pay expensive rent for retail space. Many products can be custom-prepared for each order at its Long Island warehouse.

4.1.5 Webvan

Webvan was the poster child of failed dot com businesses. Founded in the late 1990s by Louis Borders, co-founder of the Borders bookstore, Webvan enjoyed all the advantages the heyday of the dot-com boom had to offer, yet still ended up filing for bankruptcy in 2001.

Webvan was able to secure a large amount of capital with its revolutionary idea of completely changing the way Americans buy groceries. At the time of its bankruptcy, Webvan had burned through $1.2 billion in financing.

George Shaheen, Anderson's CEO at the time, joined Webvan in the fourth quarter of 1999 and became Webvan's CEO. None of Webvan's senior executives or major investors had any management experience in the supermarket industry. According to Louis Borders in an interview with Business Week (“We're Building,” 1999), Webvan “studied Amazon.com as a benchmark for a good shopping experience, looked at Yahoo! as a benchmark for speech, relied on eBay as a benchmark for community, and CNN as an example of great content.”

4.1.6 Streamline

Streamline was founded in 1993 by Timothy A. DeMello, a former stockbroker. Timothy A. DeMello served as the Chairman and CEO of the company. Streamline.com Inc. was the second pure-play e-grocer to operate in the US. In June, 1999, the company completed an initial public offering of its stock (NASDAQ: SLNE), raising approximately $45 million to fund its expansion plans.

In the last two years of its operation (1999 and 2000), Streamline tried to bring in more executives who had experience in food retail or national store rollout (“Streamline.com Announces,” 2000). In September, 1999, Streamline hired Edward Albertian as President and C.O.O.; prior to joining Streamline.com, Albertian worked for Star Markets Company, one of the premier regional food retailers in New England. He also handled Staples Inc.'s rapid store expansion plan throughout the US while he was the Senior Vice President of Eastern Operations at Staples Inc. In 2000, Streamline added Rod Sturchio to its executive team. Sturchio had more than 30 years of experience in grocery retail operations and store rollout. Streamline shut down its business in November 2000, after it had failed to secure funding for its operation.

4.1.7 Summary

Peapod, Tesco, Safeway and FreshDirect's management teams all have knowledge and experience in grocery business. Having a background in the grocery business and knowledge of grocery supply chain and distribution are important to an egrocer. The e-grocers who failed (Webvan and Streamline) had knowledge of dot.com or general retail business, but not specific knowledge of food retailing.

4.2 Expansion and Market Selection Strategies

This section examines the markets targeted by e-grocers, characteristics of target markets, and e-grocers' strategy to expand market share.

4.2.1 Peapod

According to Peapod.com, Peapod delivers to over 12,700,000 households and 1,500 zip codes. It serves multiple metro areas. The markets vary in population density, but all the current locations Peapod serves are the metro areas that have physical grocery stores owned by Royal Ahold, an international supermarket operator based in the Netherlands.

Peapod takes small steps when it comes to expansion. In 1990, Peapod began test marketing to about 400 households in Evanston, IL. Only after the Evanston market became a success did Peapod expand service to the surrounding suburbs and Chicago. This continues to be their expansion strategy (see Appendix E for the list of Peapod delivery areas and its expansion timeline).

Typical Peapod customers are dual income couples and dual income families. A wide range of people are identified as their customers: "dual career couples stocking up on basics for their families, time-starved professionals seeking the convenience of prepared foods, epicures in search of natural, organic, and specialty fare, new parents with a need for baby products or personal health and beauty aids, singles who prefer to not have to lug heavy shopping bags, and even office managers who want to offer their employees snacks without wasting staff time shopping in stores” (“Peapod Brings a,” n.d.)

4.2.2 Tesco

Tesco.com offers grocery delivery to most UK residential areas (“Grocery help,” n.d.). Tesco has expanded its online operation to the Republic of Ireland and South Korea (Tesco Annual Review, 2008). The UK (248 per sq. km) had 8 times the population density of the US (31 per sq. km) in 2004 (“World Population Prospects,” n.d.). In Great Britain, a large population lives closer together. Many families do not own a car. It is hard to take heavy items home after shopping for groceries. Tesco.com added its online grocery service slowly to its existing brick-and-mortar stores. Since Tesco.com builds its online grocery service on its physical stores, it manages to expand with limited investment. Note that Tesco.com opened its first onlineonly store in 2007 for its expansion into a high-demand area without many physical Tesco stores. According to Cooper (2007), Tesco's service is liked by a wide range of customers, including families with young children, people that consider going to a physical store challenging and those who just want the convenience shopping online offers. Even price-conscious shoppers like Tesco's e-grocery service. As of 2007, Tesco.com has an active customer base of 850,000. Tesco's online grocery service appeals to people who do not own a car, are recovering from surgery and are unable to leave home and busy young families (Tesco Annual Review, 2008).

4.2.3 Safeway

Safeway.com delivers to residential locations along the East and West Coasts in the US (see Appendix F for Safeway delivery areas). Safeway's markets vary in population density. They all have Safeway-owned physical stores. The Safeway.com and Vons.com online grocery services expanded slowly and carefully instead of aggressively like the previously failed online grocers like Webvan (“Safeway.com Finds,” 2002). Safeway.com's online grocery service expands as Safeway's brick-and-mortar stores expand.

Safeway emphasizes busy lifestyles among its customers and targets consumers who are willing to pay extra to have their groceries delivered to avoid heavy traffic and congested commutes.

4.2.4 FreshDirect

FreshDirect delivers in Manhattan, Brooklyn, and Queens, as well as select areas of Staten Island, and Westchester and Nassau counties. The company also delivers in Riverdale, Jersey City, Hoboken, and several New Jersey townships along the Hudson River. FreshDirect also delivers to corporate offices in Manhattan with a service called “FreshDirect At The Office.” Through the pickup service offered at its warehouse, anyone in the Tri-State area can enjoy FreshDirect.com's service. FreshDirect focuses its service where it started—the New York City (N.Y.C.) metropolitan area, with nearby communities gradually added to its delivery zone. The N.Y.C. metro area has the following characteristics: a large population concentrated in a tiny area; much less competition from traditional supermarkets; and most of the grocery stores are small corner stores. Carrying groceries home is difficult because many people do not have cars. There is a large, relatively affluent population that is willing to pay for premium groceries; N.Y.C. has a population accustomed to having “everything” delivered (Nishino, 2007).

In New York, FreshDirect expands slowly and with caution. New customers were added block by block or even building by building, until word-of-mouth caught on. For expansion outside of New York, Fresh Direct is aiming at cities with similar characteristics as New York City: high internet use, dense population, and affluent residents. FreshDirect will not try to cover the whole surrounding area of a city; instead, the company refers to “move from population center to population center” (McLaughlin, 2005).

FreshDirect now has over 250,000 customers, and this number is growing fast. It targets the large number of potential customers in the New York metropolitan area who are affluent, short on time, and who consider the environment of tiny local grocery stores to be unpleasant. Manhattan's corporate offices that need catering services for meetings and events are also important customers of FreshDirect. Corporations that are willing to offer convenience for employees are also identified as potential customer sources.

4.2.5 Webvan

At its peak, Webvan offered service in ten markets in the US: San Francisco bay area, Dallas, San Diego, Los Angeles, Chicago, Seattle, Portland, Atlanta, Sacramento, and Orange County. These cities are typical mid- to large-size cities in America. The population density of each city varies. Webvan tried to use the Amazon.com model by expanding quickly. The company had originally hoped to expand to 26 cities. Starting from San Francisco, Webvan planned to reach across the US. In 1999, Webvan announced it was moving into Chicago, Dallas, Washington, DC and Seattle. It expanded into Atlanta in May, 2000. The company acquired HomeGrocer one month later. When the business was not doing well, the Dallas and Atlanta outlets were closed to cut costs in 2001. As of June, 2001, Webvan's active customer base was 761,000 (“Webvan Adopts,” 2001). The company vowed to set a new standard for internet retailing. Webvan aimed to attract the technology-savvy shopper, the time-starved people, and the affluent shopper.

4.2.6 Streamline

Streamline.com Inc. served suburban areas of Boston, Chicago, Washington DC, and New Jersey. The population density in these markets varies. In June, 1999, the Company completed an initial public offering of its stock (NASDAQ: SLNE) raising approximately $45 million to fund its expansion plans. Streamline had an aggressive national expansion strategy to be in the top 20 US markets by the end of 2004. Streamline provided busy suburban families with time-saving lifestyle solutions through Internet-based ordering of groceries and a wide range of other quality goods and services. By offering thousands of leading brands and local services to satisfy busy suburban families' multiple retail needs, Streamline enabled them to spend more time doing other things they enjoy more (“Streamline.com Launches,” 2000). The company also provided targeted research and marketing services to many consumer goods companies nationwide.

4.2.7 Summary

The e-grocers all seek to target customers who are relatively affluent, short on time and prefer convenience. People who are physically challenged are also potential users of e-grocers. Among the more successful e-grocers, Peapod, Tesco and Safeway offer e-grocery services in markets with varied customer densities, while FreshDirect only focuses its business in the high customer-density market of New York City and its surrounding areas. They all use a slow and cautious growth strategy. Both of the two failed e-grocers (Webvan and Streamline) expanded their businesses aggressively and delivered to multiple markets with different customer densities. 4.3 Order Fulfillment Strategies This section examines the type of order fulfillment strategy each e-grocer uses. Two basic strategies are employed in order fulfillment: using store shelves and using central warehouses.

4.3.1 Facilities and Technology

4.3.1.1 Peapod. Peapod uses a combination of store fulfillment and warehouse fulfillment. The company runs 16 warerooms attached to Royal Ahold stores. Each has approximately 7,000 square feet. Chicago is served by a 75,000-square-foot climatecontrolled central distribution center (that had once belonged to Streamline.com) in Lake Zurich. Another 75,000-square-foot warehouse serves the Washington, DC area from Gaithersburg, MD.

4.3.1.2 Tesco. Tesco.com uses both its physical grocery stores and a newlyopened stand-alone warehouse for order fulfillment. The new warehouse was opened in February, 2007 in Croydon in South London to serve the area where fewer Tesco stores are present or where online grocery demand is exceptionally high. Tesco.com's order picking process is assisted by wireless smart Atigo tablet computers developed by Xperience.

4.3.1.3 Safeway. Safeway.com uses Safeway-owned stores to fulfill orders. The company uses an analytics reporting system developed with Fireclick to control inventory and track performance. A tablet computer called “Teampad” that shows orders is attached to a picker's cart to aid the picking process. Safeway employees assemble orders from store shelves with the help of the tablet computer.

4.3.1.4 FreshDirect. FreshDirect has a 300,000-square-foot warehouse designed to handle 1000 orders per hour or 10,000 orders per day in Long Island City. This is a highly-automated facility with multiple temperature zones for the freshness of various food items. SAP AG software and miles of conveyor belts move bins of ordered items to the final sorting area after passing through different departments. It follows USDA guidelines and the HACCP food safety system to ensure the quality of its goods. FreshDirect's batch manufacturing system is similar to that of Dell's. Its supply chain and fulfillment technology make it possible to deliver highly personalized orders. That is, meat can be cut to customer-specified thickness with customer-chosen marinade.

In 2006, FreshDirect even utilized Automation Associates, Inc.'s (AAI) simulation modeling software and services to build and further improve operations efficiency within its warehouse (“Online Grocer, Fresh,” 2006).

4.3.1.5 Webvan. Webvan built a centralized warehouse and distribution center in every market it entered. Webvan placed a $1 billion order with the engineering company Bechtel to build its state-of-the-art warehouses at $35 million each. In the warehouses, processes are controlled by a customized warehouse management system based on the commercial product from OPT. The money spent on infrastructure was enormous. Webvan bought a fleet of delivery trucks, 30 Sun Microsystems Enterprise 4500 servers, dozens of Compaq ProLiant computers, several Cisco Systems 7513 and 7507 routers and other high-tech equipment.

4.3.1.6 Streamline. Streamline leased a 56,000-square-foot warehouse in Westwood, Massachusetts, for its initial operation in the Boston area. This warehouse cost the company $364,000 a month. It also leased another 56,000-square-foot warehouse in Gaithersburg, Maryland. Streamline acquired assets of Shopping Alternatives, Inc. in the Washington, DC, area and Beacon Home Direct, Inc. in the Chicago area. In October, 1999, the company signed a lease for a 102,000- square-foot distribution facility in Carlstadt, New Jersey. In April, 2000, Streamline announced the signing of a lease for a 108,000-square-foot facility in Shakopee, Minnesota, to facilitate entry into the Minneapolis market. In addition, the company also signed a lease for a 147,000-square-foot building in Norwood, Massachusetts. Streamline's warehouses were called consumer resource centers. They were located in industrial settings and allowed the company to create efficient operational processes. For example, inventory was stocked according to movement and temperature requirements rather than customer aesthetics, which allowed Streamline to maximize pick-and-pack efficiency.

4.3.2 Order-picking Method

4.3.2.1 Peapod. In the early years, Peapod partnered with various supermarkets. Personal shoppers employed by Peapod picked orders directly from their shelves. For example, in Chicago, Peapod picked from Jewel stores, and in San Francisco, Peapod partnered with Safeway. Later, Peapod co-branded with these chains with names like “Peapod by Stop-and-Shop” and “Peapod by Giant.” In 1997, Peapod began using warerooms attached to the stores, so they could pick orders without obstructing customers who were physically at the store. After their business in Chicago and Washington, DC, grew, Peapod then started using central warehouses from which they could put together orders for these markets.

4.3.2.2 Tesco. Tesco originally had pickers pick online orders directly from shelves of neighborhood Tesco stores. Each transaction made on the website is logged on Tesco's central server. Order information is relayed to the shop nearest to the postcode specified on the order's delivery address. Currently there are 294 Tesco stores in the UK that also fulfill online grocery orders.

The pickers are equipped with a cart-mounted tablet PC. The orders that are downloaded to a shop's local server are then split into logical picking groups. The cartmount system coordinates the shopping lists and guides personal shoppers through the store. A bar code reader is attached to the tablet PC to allow pickers to scan picked items into the system. Customer-specified substitution preferences are also displayed for the pickers to make adequate alternative choices for online grocery shoppers. Tesco opened its first warehouse in 2007. This online-only facility serves the online customers to the south of London. The products in the warehouse are laid out the same way as in a standard Tesco store. The shelves are also filled the same way as in a physical store. Therefore, the pickers pick orders in the same way. Tesco has now over 9,000 staff picking online grocery orders in its UK stores (Tesco Annual Review, 2008).

4.3.2.3 Safeway. According to an interview with Safeway employee Ryan Lynch at a Safeway fulfillment store on April 19, 2008, Safeway.com has employees pick orders in stores. Once Safeway receives online orders, order information is transmitted to the customers' nearby stores, where pickers would hand-select products from the shelves and put together several orders at a time.

The professional pickers are equipped with an electronic device (a tablet PC named Teampad) attached to their carts and can read order details from it. The device also shows the pickers exactly where the items are and the fastest route to collect the items. When the picker picks up the product, he scans it directly into the Teampad then puts it into the basket. The picker would select all produce items for all orders (up to 6 at a time) before selecting all the meat items, rather than shopping the whole store for one customer at a time.

4.3.2.4 FreshDirect. In FreshDirect's centralized warehouse, temperatures are carefully controlled to keep food fresh. SAP AG software is used to process orders. Orders placed on its website are sent out to FreshDirect's employees, many wear wool gloves and hats under their plastic protective gear, in different departments. All order components are prepared, packaged, weighed, and priced, then placed inside bins that travel along miles of conveyors to the sorting area. Items of each order are gathered together, scanned, and put into delivery boxes.

4.3.2.5 Webvan. The Webvan warehouses had three zones determined by temperature: ambient, chilled, and frozen. Yellow totes were used for picking ambient products, while green ones were for chilled products and blue ones for frozen products. Heavier ambient products were picked from flow racks. Other goods were placed on rotating carousels. Instead of having pickers move around in the warehouses to assemble orders, Webvan had goods moving to pickers. Different pickers were involved in filling each order (“We're Building,” 1999).

Webvan pickers for ambient products had a wrist-mounted display and fingermounted scanner. Pickers who worked by the carousels used a terminal to identify which locations to pull from and in which tote to place the picked items. Completed orders moved on carousels to the check/ship zone.

4.3.2.6 Streamline. Streamline picked orders in its consumer resource centers. These centers were warehouses that had an industrial setting. Products were separated into a number of different areas based on product characteristics such as perishability, fragility, temperature zone, odor and purchase frequency to maintain quality and improve picking efficiency. Order picking took place overnight after 11:00 p.m. on the day before the scheduled delivery.

Streamline optimized the picking process by employing traditional logistical techniques such as segregating fast and slow-moving items. To maximize efficiency, Streamline employees picked multiple customer orders at one time, aided by a handheld computerized device that directs them to pick orders in the most efficient pattern while maintaining accuracy through bar coding. Once the order was picked and consolidated in each customer's delivery bins, employees staged it for delivery in the morning.

4.3.3. Inventory Control

4.3.3.1 Peapod. Peapod carries a large selection of perishable and nonperishable items that you would find in traditional grocery stores as well as chefprepared meals. Product prices are comparable to those in local supermarkets. When Peapod competed with customers at the physical stores when fulfillingorders, it was difficult to keep track of the inventory. During an interview, Thomas Parkinson, C.F.O. of Peapod, said this caused their out-of-stock level to be 10%, which meant Peapod had to employ in-store facilities separated from customers (Cox, 2007). 4.3.3.2 Tesco. Tesco.com carries the same inventory as the local Tesco stores.Tesco.com fulfills its online grocery orders from physical stores. Robert Rubin, a Forrester Research analyst, said that store-pick models suffer from inventory tracking problems, because an in-store customer may have picked up the last item of something that was just ordered online (Sandoval, 2002). High substitution rate is a frequentlyheard complaint from customers.

4.3.3.3 Safeway. Safeway.com offers the same selections and price as local Safeway and Vons grocery stores. Safeway.com uses Safeway-owned stores to fulfill orders. One store in each region is designated as the fulfillment store; therefore Safeway needs data about the selection and inventory of this particular store. Because

Safeway could not find a pre-existing system to meet its analytical needs (“How Web Analytics,” 2004), the company worked with Digital River's Fireclick to develop a new one. After six months of group effort between Safeway.com and Fireclick, the result was a sales and inventory reporting system that Safeway used to track products and analyze performance.

4.3.3.4 FreshDirect. FreshDirect offers 5000 perishable products but only 3000 choices in packaged goods (versus 2200 perishables and 25,000 packaged goods in a typical grocery store). The margins for perishable goods are higher than non-perishable goods, thus FreshDirect gets 8% higher gross margins (“What an E-tailer,” 2003). FreshDirect's selections include many organic products, locally-grown items and Kosher foods, as well as items that are seen in supermarkets daily. Its four-minute-meals, ready-to-cook, and heat-and-eat meals are also popular among customers. FreshDirect is based in a 300,000-square-foot building in Long Island City, Queens. Inventory control is relatively easy due to the use of the company's highlyautomated, state-of-the-art facility that is not involved in retail operations and its sophisticated software. A batch manufacturing process helps it keep waste to a minimum. No substitutions are made because of accurate inventory information. 4.3.3.5 Webvan. Webvan carried approximately 20,000 stock-keeping units (SKUs) in its warehouse. It also had a consumer electronics and entertainment category featuring personal consumer electronics, video games, movies, and CDs. It also sold books, mass-transit fare and toll cards.

Webvan built numerous highly-automated warehouses to fulfill orders. In each market, a large inventory was kept in one central warehouse. Software kept track of what was moving.

4.3.3.6 Streamline. Streamline was neither the most expensive nor the least expensive retail/service provider. The price of products was similar to that of a traditional supermarket. The food, approximately 11,000 SKUs, was supplied to Streamline by SuperValu. Streamline also offered other services such as dry cleaning pick-up and delivery, package pick-up and delivery, and video and video game rental. The other services the company provided were handled through local operators under contract.

In Streamline's warehouses (consumer resource centers), inventory was stocked according to movement and temperature requirements rather than customer aesthetics which allowed the company to maximize pick-and-pack efficiency. Streamline also used customer purchasing data to maximize the efficiency of internal operations. By understanding the ordering patterns of the company's customers, Streamline was better able to capture and forecast real demand for products and services, which enabled the company to maintain lower inventory levels and decrease inventory carrying costs.

4.3.4 Summary

There are two major models when it comes to order fulfillment: one is assembling orders from store shelves, the other from central warehouses. Of the six e-grocers examined, Safeway assembles online orders from the shelves of stores; Peapod and Tesco use a combination of store fulfillment and warehouse fulfillment; and FreshDirect, Webvan and Streamline use warehouses to fulfill orders.

4.4 Order Delivery Strategies

This section describes delivery options, pricing and the strategies each e-grocer employs to improve operational efficiency.

4.4.1 Order Delivery Options and Pricing

4.4.1.1 Peapod. Peapod offers both attended and unattended delivery to residential customers seven days a week. The time of delivery can be as early as the next day or as late as two weeks later. No one has to be at home when the delivery is made. For unattended delivery, the order will be left in insulated containers to preserve the temperature, at a place designated by the customer. Peapod also provides deliveries to businesses on weekdays. Peapod delivery fee is from $6.95 to $17.95 depending on the order amount, location and whether it is for residential or business delivery (see Appendix G for Peapod delivery fees). Tips are accepted by drivers.

4.4.1.2 Tesco. Tesco.com delivers groceries 7 days a week to most of the residential addresses in the UK Deliveries can be scheduled as early as the next day or as late as 3 weeks later. Delivery fees vary between £3.75 (approximately $6.50) and £6.25 (approximately $10.80) depending on the time-slots chosen. Deliveries are made from 9:00 a.m. to 11:00 p.m. All delivery windows are for periods of two hours. Tips are not accepted by drivers.

4.4.1.3 Safeway. Safeway offers only attended delivery to residential and business customers. Groceries are delivered in refrigerated trucks designed to maintain temperature integrity for fresh and frozen products. Someone over 18 years of age must be present to accept orders. Drivers bring the order to the customers' kitchens. Delivery can be scheduled for as early as next day or as late as three weeks later. Both four-hour windows and two hour-windows are available. The regular delivery charge is $7.95-$12.95. Delivery fees vary slightly depending on location, the length of the delivery window and the order amount. The minimum order amount is $50.00. No tips are accepted by drivers.

4.4.1.4 FreshDirect. FreshDirect offers attended deliveries seven days a week to residential addresses and five days a week to corporate offices. Orders can be scheduled to be delivered as soon as the next day or as late as seven days later. Most delivery windows are for periods of two hours.

Minimum order size for home delivery is $30.00. Delivery fees vary from $4.99 to $6.99 depending on customers' locations and order sizes. The minimum order size for a corporate delivery is $75.00. The delivery cost is $14.99.

FreshDirect also offers a special Corporate Depot Program which is available to corporations in the Tri-State area with 1000+ employees. FreshDirect works with interested companies and brings its trucks to a designated spot in the parking lot for the employees to pick up their orders. Customers can also pick up their online orders at FreshDirect's Long Island facility. There is no charge for pickup. Tips are accepted by drivers.

4.4.1.5 Webvan. Webvan adopted a hub-and-spoke system. Several transfer stations were set up around each warehouse to distribute orders to local customers. Webvan allowed customers to schedule delivery within a 30-minute time window. Orders had to be received by 8:00 p.m. the day before delivery. Webvan charged customers $4.95 for orders of $75 or less and offered free delivery for orders of $75 or more. Later, delivery fees were raised to $9.95 for orders less than $75, $4.95 for orders of $75 to $100 and free for orders of $100 or more (“Webvan Adopts,” 2001). Tips were accepted by drivers.

4.4.1.6 Streamline. Streamline delivered products and services to each customer through a single weekly delivery. Streamline customers did not need to be home to receive their orders. Streamline offered two options for unattended delivery. In the first (and least expensive) option, Streamline used a chill container that kept refrigerated and even frozen products fresh up to 30 hours. Streamline's drivers retrieved the container left on the previous trip when they made the next delivery. The second and more expensive option was limited to consumers with a garage. Streamline installed a keypad outside the garage which gave the delivery person a way to gain entry. A 60”x30”x62” box was installed in the consumer's garage and included a refrigerated section, a frozen section, and a section for dry goods. These unattended deliveries were made before 6:00 p.m. on a fixed weekday each week. Streamline charged a $39 reception box setup fee and a $30 monthly subscription charge for one delivery per week. Tips were not accepted by drivers.

4.4.2 Strategies for Operational Efficiency

4.4.2.1 Peapod. On Wednesdays and weekends, deliveries are only offered between 7 a.m. and 1 p.m., while the delivery times on the other days occur between 2:30 p.m. and 8:30 p.m. Peapod has different delivery times available at different prices. Once a residential customer is on the “Delivery Times” web page, the Peapod website will show all the delivery slots, with some marked as “save $1.00” and some marked as “$1.00 additional charge.” Longer delivery windows are available for a reduced charge, while the most popular delivery windows are charged an additional fee. Peapod introduced “SmartMile,” which encourages customers to choose a delivery time when Peapod will be in their neighborhood. These “SmartMile” delivery windows are offered at a discount to attract customers. Peapod also has different web pages stating different discounts and selections for different markets. For example, for Greenwich, Connecticut, Wednesdays are called “value days;” therefore, all delivery slots are discounted from $1.00 to $2.50 on Wednesdays.

Peapod understands the amount of anxiety and inconvenience a long delivery window can cause. For the regularly-priced delivery slots and reduced fee (longer) slots, an Estimated Time of Arrival (ETA) is available for customers to track the possible time the delivery truck will arrive within a two-hour window. Customers can access ETA information through their mobile phone or by logging into their accounts.

4.4.2.2 Tesco. Delivery time slots are priced differently according to their popularity to encourage the use of less-popular delivery windows. Orders are spread out across the week and throughout the day to ensure high efficiency of delivery. Customers of Tesco.com have the choice of getting a “bagless” delivery. Those who select this option will have their groceries delivered in stackable green trays directly to their kitchens. These customers are offered Green Clubcard points, and Tesco.com is able to reduce the number of bags it uses.

4.4.2.3 Safeway. Safeway.com encourages customers to choose longer delivery windows by offering lower delivery charges. On the page showing delivery windows, a customer can click, “How can I lower my delivery charge?”.The system shows that a customer will get $3.00 off a delivery charge by ordering more than $150.00 or choosing a four-hour delivery window. (Note that this $3.00 saving is already counted into the delivery fee of any four-hour delivery window displayed.)

4.4.2.4 FreshDirect. FreshDirect delivers from early in the morning until late in the night to try to avoid the busy New York City (N.Y.C.) traffic. Being flexible is key in N.Y.C. To serve the high-demand market, FreshDirect puts more delivery employees in each truck and has additional delivery personnel waiting at predetermined locations to take orders off the trucks and deliver them on foot.

4.4.2.5 Webvan. Delivery charges varied depending on the order amount. The utilization rate of drivers was low. For example, in its Atlanta market, there were about 20 delivery vans. Drivers only managed to make 17 delivers in an eight-hour shift. This rate of just two deliveries each hour was extremely low and not cost effective (Bartholdi, III, 2006). According to Forrester analyst Robert Rubin, Webvan's delivery cost was $150-$160 per hour. Yet it only made an average of 1.8 deliveries per hour. Webvan's average order amount was $91.33. The money it made barely covered the delivery cost, not the cost of the food itself (Slaton, 2001).

4.4.2.6 Streamline. Since Streamline used unattended delivery, orders did not have to be delivered to customers' residents in a scheduled short time frame. The unattended delivery system, through which Streamline delivered orders to customers at a fixed delivery day each week, allowed the company to maximize fleet utilization and create routing efficiencies. Streamline delivered about ten orders per hour compared to about three for an e-grocer that used attended delivery. Streamline also implemented route-planning software to gain further efficiencies.

4.4.3 Summary

All e-grocers examined offer home delivery of groceries. FreshDirect also offers free pickup. Attended delivery is the delivery method used by most e-grocers, but Streamline only offered unattended delivery. Various routing methods and other ways of encouraging the use of less-popular delivery-time slots are utilized to improve e-grocers' operational efficiency.

4.5 Web Design and Customer Relations Management

This section examines each e-grocer's web design and strategies for customer acquisition and retention.

4.5.1 Peapod

Peapod's website is well designed and easy to navigate. Multiple search methods are provided to help find an item. Shopping lists can be created and kept online. Order history is easily found for making repeat purchases. For people who are new to its website, registration is not necessary to view items. The website is colorful and a joy to look at.

As of November, 2006, Peapod had delivered to 270,000 customers. As noted by Peapod's spokesperson Paula Wheeler, Peapod started small and marketed aggressively to build its business (Sandoval, 2002). In 1995, Peapod launched its first advertising campaign and gained 4,600 members. After that the customer base was built mostly through word of mouth. Peapod has Volkswagen Beetles painted brightly with the Peapod logo (Pod Bugs) running through neighborhoods to spread the Peapod image.

Peapod.com launched an Affiliate Program to generate more traffic to its website. Any website can join this program and refer new customers to Peapod and earn money. On a monthly basis, commissions are offered to the website according to the number of customers the site referred. For individual customers who refer a friend, Peapod gives both the customer and the friend a $10 rebate. Peapod accepts manufacturers' and internet coupons. It does not accept competitors' coupons. Customers give coupons to delivery drivers to get the coupons' value refunded to their account.

Peapod offers product selection that is the same as the local Ahold grocery stores that help fulfill the orders. Peapod's prices are comparable to traditional grocery store prices. Peapod guarantees the online price for seven calendar days starting from the day the order is placed. If the order is scheduled for delivery in more than seven days, the price will be adjusted to reflect the current price.

4.5.2. Tesco

Tesco.com's website requires registration to view the contents. Multiple methods like “Express Shopper” and “My favorites” are provided for item searching. The page design is quite simple and straightforward. Tesco has its loyalty card program. Tesco.com customers can collect Clubcard points just like shoppers at physical Tesco stores. On Tesco.com, customers can use “Tesco Price Check” to compare the price of everything they carry to those carried by Tesco's major competitors. Competitors' coupons are accepted by delivery drivers. Customers get credit back on their payment cards. Tesco introduced a fleet of fully electric, zero-emission home delivery vans in May, 2007 to improve the company image and gain the business of environmentally conscious consumers.

Tesco.com's price and selection are as same as local Tesco stores. There is one drawback: Tesco.com customers are charged the price in the store on the day the orders are picked and delivered. So the savings they saw while ordering their groceries online may no longer be valid on the day of delivery. This policy risks alienating priceconscious customers.

4.5.3 Safeway

Registration is not necessary for someone who wants to view the items Safeway.com offers. Safway's website is designed for customers to easily find what they want. Clubcard specials and online specials are clearly displayed. Items can be sorted according to price, brand or clubcard specials. The design is simple and straightforward.

Safeway.com campaigned hard to attract consumers to use its online grocery service. In 2003, Safeway launched a multi-media advertising campaign in the San Francisco area, including TV, radio, direct-mail, and e-mail promotions. According to GroceryWorks' (operator of Safeway.com) CEO Mitchell Rhodes in 2003, these campaigns were to let more consumers know about Safeway.com and convince them of the convenience of online grocery shopping (Demery, 2003).

By linking Safeway.com accounts with customers' Safeway club cards accounts, Safeway.com shows customers the items that they've purchased online as well as in stores. Online customers share the same club card discounts and full range of products available at their neighborhood Safeway stores. The airline mileage credits from the United Mileage Plus program are also available to online shoppers. Safeway.com also has an affiliate program that offers money to the websites that refer customers to Safeway.com.

Safeway.com's price and selection match those of the designated fulfillment stores in each area.

4.5.4 FreshDirect

FreshDirect's website is full of beautiful pictures of food items and produce. It is designed to capture the eyes and appetites of customers. Anyone can browse the aisles to see what's being prepared for your table. FreshDirect takes pride in the way the food is handled in its facility. Detailed information can be found on its website regarding the food preparation process.

Delivery fees are kept low. The newly lowered minimum order amount is only $30.00. FreshDirect items are offered at prices 10-35% less than local supermarkets. Ready-made meal items and quick-heat meals are big sellers. A customized order differentiates it from other grocers. FreshDirect guarantees 100% customer satisfaction, but product selection is smaller.

4.5.5 Webvan

According to Schubert and Leimstoll (2001, p5), Webvan's website “embodies an ambitious Web solution with good communication towards the customer. The product supply is extremely large and manifold and you find a lot of additional information about the products. Webvan distinguishes itself with a fast registration and with user-friendly features in the agreement phase.”

Webvan partnered with Old Navy, Coca-Cola, Kraft Foods, and other firms to market its service. The company spent an estimated 30% of sales revenue on marketing to build brand recognition (Levine, 2002). Webvan had a “tell a friend” referral program that rewarded customers for introducing Webvan to their friends and family. Webvan's website had anexpanded customer feedback feature that allowed customers to make product suggestions. Webvan.com received the number one ranking out of 12 online grocers evaluated by Gomez (a leading provider of Internet research and analysis). The Gomez Summer 2000 Internet Grocery Services Scorecard ranked webvan.com high in areas such as Customer Confidence, Relationship Services and Overall Cost (“Webvan.com Heats Up,” 2000). Webvan's prices were comparable to the price of traditional supermarkets. Its selection was bigger, because Webvan also carried items like consumer electronics.

4.5.6 Streamline

Streamline had a customer referral program. It also marketed its services by forming relationships with strategic partners and engaging in joint marketing. Streamline worked with Nordstrom to utilize Nordstrom's brand loyalty, existing customer relationships and presence in similar target markets. By continuing to introduce new products and service offerings, Streamline sought to increase the size of customers' weekly orders. The company's technology/ software allowed it to track customer purchasing data to determine what products and services busy suburban families are most likely to appreciate. Streamline's strategy was to build a single consolidated operation that satisfied customers' multiple needs and become the primary supplier of many products and services customers acquire.

Streamline offered over 10,000 SKUs of food items and a wide array of services. The price of products is comparable to that of traditional supermarkets.

4.5.7 Summary

The examined e-grocers designed their websites around the ease of navigation and the richness of contents. Multiple tools are offered to help customers find a product easily. Nutrition information and recipes are provided. Streamline offered special services such as dry cleaning and shoe repair. Other e-grocers use varied strategies to create customer intimacy, capture information on customer's preferences and make the shopping experience a delightful one.

4.6 Cross-case Analysis and Findings

This section makes comparisons of the operational characteristics and strategies of Peapod, Tesco, Safeway, FreshDirect, Webvan and Streamline. The goal is to look for common patterns that distinguish successful and unsuccessful e-grocers.

4.6.1 Analysis

The matrix/table in Appendix H shows a comparison of the six e-grocers according to the data collected. Of those six e-grocers, Peapod, Tesco, Safeway, and FreshDirect are the ones whose online grocery businesses are still going strong in today's market. Considerations include: What patterns were found in the survivors' strategies?

1. Management teams have sufficient experience and knowledge of the traditional grocery business.

Tesco.com and Safeway.com are both run by traditional grocers. Of the two founders of FreshDirect, one once co-founded a traditional supermarket; and the other was a former investment banker specializing in the grocery business. Peapod's founders, the Parkinson brothers, hadn't worked in the grocery industry, but were later joined by a new CEO from Royal Ahold.

2. Although Peapod, Tesco, Safeway, and FreshDirect operate in markets of differing customer densities, Peapod, Tesco, and Safeway use store-pick model in most markets. However, both Peapod and Tesco moved to warehouse-pick model in markets where they saw greater demand. FreshDirect focuses its business in the N.Y.C metro area where population density and demand for egroceries is especially high. FreshDirect also uses the warehouse-pick model.

3. All offer an attended grocery delivery service with similar charges. Some also offer unattended delivery or pickup services. 4. Peapod, Tesco.com, Safeway.com took slow steps when it came to expansion. Their strategy was to expand services to areas with the brick-and-mortar support of their parent companies when choosing to enter a new market. Capital expenses for starting a new market were kept low as a result. Utilizing a warehouse-pick model, FreshDirect still focuses on expanding its business in New York City, which has a very high level of customer density. These patterns of strategies were compared to Webvan and Streamline, two unsuccessful e-grocers, in order to investigate any differences.

1. None of Webvan's major investors or senior executives, including its C.E.O. George Shaheen (former head of Andersen Consulting), had any management experience in the supermarket industry. Webvan's founder Louis Borders once compared his company to Amazon.com, Yahoo!, eBay and CNN in an interview (“We're Building,” 1999)—not even one was a supermarket chain Webvan was competing with. Streamline was founded by a former stockbroker, Timothy A. DeMello. He remained as Streamline's Chairman and C.E.O. until the day Streamline filed for bankruptcy. It wasn't until the final years before Streamline closed that the company started to bring in executives who had more experience in the grocery industry and store rollout.

2. Webvan and Streamline expanded their business quickly across the country. No matter how many potential customers existed in each market, Webvan used its central-warehouse-picking model everywhere and built its own costly infrastructure in every market. Streamline leased expensive warehouses and used the capital it raised from the stock market on its aggressive national rollout plan until it ran out of money to keep operating. The relatively successful egrocers use the low-startup-cost store-pick model in most markets and a much more cautious and slow growth strategy. Note that FreshDirect utilizes a warehouse-pick model and succeeds in New York City where there is high demand for e-groceries. Peapod later began to use centralized warehouses in Chicago and Washington, DC, where customer demand had been high. Tesco also started using one warehouse in 2007 in a high-demand market. This interesting fact suggests that the warehouse-pick model may be the way to go when customer density is already high enough to offset the higher fixed cost. How are the survivors/winners different from each other?

1. Selection/pricing of products varies. The selection and product price and quality of Peapod, Tesco.com, and Safeway.com are comparable to those of the brick-and-mortar stores they pick their orders from. A delivery fee is charged to cover the costs of order assembly and delivery. FreshDirect takes a different approach. It offers less selection than a traditional supermarket but lower prices, higher quality, and more customized products are provided. FreshDirect stocks more (higher-margin) perishable items than non-perishable items. Due to the high level of customer density in New York City, FreshDirect's delivery fee and minimum order amount are also lower than the other e-grocers. Grocery pick-up is free. Its competitive strategy is apparently different from the other three.

2. The customers they serve are not the same. Peapod and FreshDirect serve both residential and corporate customers. Tesco and Safeway only serve residential customers.

4.6.2 Findings

Through the examination and comparisons of the six e-grocers and the analysis of the similarities and differences of their business strategies, the following patterns were identified:

Finding #1: The management team's knowledge and experience in the supermarket industry is an important factor in deciding an e-grocer's success or failure.

To take full advantage of the opportunities provided in e-commerce, grocers need to utilize whatever know-how and resources they can get and use them wisely. Webvan and Streamline's lack of experience in the grocery business led them to overinvestment in a low-margin industry. To some extent, having knowledge of the supermarket industry not only means having the capability to make the right decisions, it also means having the vital connections and resources at hand. For example, grocery business veterans like Safeway and Tesco already have a mature grocery supply chain. With the tremendous purchasing power of their existing stores, they can get the best prices possible from suppliers (economies of scale). Better knowledge of supply chains enables operational efficiency and better margins. Margins are razor-thin in food retailing and thus don't allow new businesses much room for learning or error. In the internet boom years, Webvan and Streamline had huge amounts of venture capital, yet the lack of experience in the supermarket business cost the two companies dearly. Webvan and Streamline were paying their dues dealing with their own supply chain and building/leasing expensive warehouses. Their management teams made a huge mistake taking the high-cost route in the low-profit-margin grocery industry.

Finding #2: Using a cautious and slow expansion strategy helps e-grocers control expenses and stay in the game. Peapod, Tesco, and Safeway gradually expand their e-grocery business to markets where their parent companies have a strong presence of existing brick-andmortar grocery stores. FreshDirect slowly adds more zip codes to its delivery zones. Compared to Webvan and Streamline's aggressive and quick national rollout plan, the more cautious growth strategy of Peapod, Tesco, Safeway, and FreshDirect helps them avoid high start-up costs and overinvestment in low-demand markets. As a result, the proper growth strategy increases their ability to survive and thrive in the e-grocery industry. It also helps them to grow the business, because profits can be plowed back into growing the business rather than servicing debt. They use an organic, sustainable growth strategy.

Finding #3: Using the brick-and-mortar-supported store-pick model, which requires a lower start-up cost in most markets, helps an e-grocer survive in today's market. The pure-play warehouse-pick model can be used in highcustomer- density markets.

The e-grocery business in the US has its own unique situation. In the UK, the population density is much higher than in the US, and grocery stores are crowded. Many people do not have cars to take heavy grocery items home. Shoppers are eager and ready to transition from the traditional way of grocery shopping to shopping online. As the first proven successful e-grocer, Tesco took advantage of a dense market and saved money by using the infrastructure of its existing brick-and-mortar stores. The UK's high customer density is not what the US e-grocers have right now. America is a country that has more land and a lower population density than the UK. The grocery stores here normally offer quite pleasant shopping experiences. Many American families have at least one car per adult. Although people complain about the long lines in local grocery stores all the time, it does not mean they will quit standing in them. Only a low percentage of people are motivated to shop for groceries online. This suggests that online food shopping might never represent more than a small niche in the US grocery market. Furthermore, the conditions in each market vary greatly. Large cities like New York City and Washington, D.C. are more like the UK. Higher customer density offers e-grocers better opportunities to achieve the necessary volume to become profitable. The population's propensity to rely on public transportation would also be a factor—not all cities with population density have efficient, well-used public transportation systems. Cities that do have systems would be better markets for egrocers, because it's no fun to drag groceries on a bus or subway. E-grocers are still struggling to survive in other parts of the US that have less customer density. Therefore, the store-pick model, which requires much less up-front infrastructure investment, is becoming the norm in today's US online grocery business.

The brick-and-mortar/store-pick model entails lower fixed costs. The employees of brick-and-mortar stores become pickers assembling online orders. Traditional supermarket chains like Safeway and Tesco use this model to offer multiple shopping channels to their existing customers and attract new customers. Brick-and-mortar support lets e-grocers be flexible and take their time to wait for customer adoption rate to rise. The warehouse-pick model is gradually being moved into markets that already have customer density high enough to achieve higher operating efficiency and better inventory control. Webvan's failure was largely due to its lack of brick-and-mortar support in low-customer-density markets. The high cost of operating warehouses in these markets hindered its opportunity to become profitable. Finding #4: There are variations of competitive strategies the successful egrocers use within their business models.

For example, efficient supply chain management and delivery services are achieved in different ways. Peapod, Tesco, and Safeway use the existing supermarket chains' tremendous buying power and infrastructure to reduce cost. FreshDirect eliminates middlemen by buying directly from growers to get cheap and high-quality produce. These e-grocers use different strategies to cut costs out of supply chains:82 Brick-and-mortar e-grocers already have the efficient supply chain via physical stores, while FreshDirect buys direct.

All successful e-grocers examined in this research offer at least attended delivery to customers. Some also offer unattended deliveries or pick-up service. Different strategies are utilized to deliver e-grocery orders to customers in a cost-effective way. For attended deliveries, a certain delivery window must be met. Peapod offers unattended delivery, which has less time restrictions and helps improve the efficiency of delivery drivers. For pick-up of online orders, FreshDirect does not charge a fee. This method is used to increase the sales volume. Peapod and FreshDirect deliver to both residential and corporate customers, while Tesco and Safeway only deliver to residential customers. By targeting a broader range of customers, Peapod and FreshDirect seek to generate higher demand. In summary, there are strategic variations within each e-grocery model. These varied strategies give e-grocers different sources of competitive advantages in egrocery operations.

Chapter Five

This chapter sums up the e-grocery industry research. The contributions and limitations of this research are also covered. Finally, possible directions for future research are given.

5.1 Looking Back

This thesis conducted case studies of six e-grocers (Peapod, Tesco, Safeway, FreshDirect, Webvan, and Streamline), in an effort to determine which operating characteristics should be best applied. Five major research questions concerning management, expansion strategy, target market, logistics, fulfillment, and customer relations were used to guide the investigation. Each major question has more specific questions associated with it to ensure the data collection is thorough and relevant. A meta-analysis of the case studies indicated that in most markets where customer density is not especially high, successful e-grocers generally distributed from brick-andmortar stores. More centralized warehouses tended to be found where customer demand has grown enough to support it in the area that the e-grocer covers. Evidence was also found to suggest that being careful and cautious while expanding helps egrocers stay focused on making profits in existing markets and avoid the mistake of irrational overinvestment. An e-grocer's management team should have knowledge and experience in the grocery business to make the right decisions. In today's online grocery industry, there are two predominant business models. One is the brick-and-mortar model which utilizes the already available resources of traditional supermarkets. The other is the pure-play model which only supports ordering online and operates facilities separate from any brick-and-mortar stores. There are also certain e-grocery firms that use a combination of these two major models to strike a balance between markets of varied customer-demand levels. Variations within each business model allow for strategic differentiation. Each e-grocer comes up with its own set of competitive strategies to tailor its services to different markets. The use of existing brick-and-mortar stores requires much less investment than the building of new warehouses. It is this cost advantage that can make the difference between survival and failure, because the level of customer acceptance of buying groceries via the internet is still in its infancy in many locations. In short, everything has to follow the basic rule of doing business. Businesses must find the right balance between the amount of investment they put into a market and the amount of customer demand that market offers-overinvestment puts the company at risk of bankruptcy. Johnson (2007) asked what businesses hoped to achieve by selling online-did they want to overhaul their business model or merely supplement their existing services? Of the six businesses covered in this study, Safeway and Tesco already had a large network of existing brick-and-mortar stores when they decided to go online. They were not planning to turn their stores into warehouses-instead, they only wanted to add an extra distribution channel to serve their existing customers and for their businesses to reach more customers in the areas they served. Royal Ahold bought Peapod and made Peapod its channel for selling groceries online. E-grocers like Safeway, Tesco and Peapod can afford to take it slow and use the less costly store-pick model until customer demand for online grocery shopping grows to a level that makes warehousepick cost efficient. Even if their current online business model is not profitable, these egrocers can continue to operate. They can even expand their service to areas with low customer demand to cultivate a broader customer base. In contrast, Webvan, FreshDirect, and Streamline entered into the grocery business with different intentions. They came to lure customers away from traditional grocers by offering groceries online. Without brick-and-mortar support, pure-players like Webvan, FreshDirect, and Streamline had to have a cost-efficient business model from the very beginning in order to achieve profitability. A warehouse-pick model in markets that already have high customer demand is the way to go for these e-grocers.

The online grocery business in the US is still in a recovery phase following the devastating failures of pioneers like Streamline.com, Homegrocer.com and Webvan. Grocery retailers realize that demand for e-grocery is limited. The e-grocery industry may or may not expand much beyond its present scope. Current e-grocers are still testing various business models in attempts to find avenues to success. Other researchers have looked into individual aspects of solutions for online grocery retailing. However, studies that provide systematic views of online grocery business models are rarely conducted. This research has examined both successful and unsuccessful online grocers regarding what they have in common and what they do differently to shed light on strategies that can bring victory to today's US e-grocers. A guaranteed recipe for success is not offered, but healthy starting points are suggested.

5.2 Looking Forward

E-grocers need enough customers to make the service financially worthwhile. Ways to increase customer demand for online grocery services could be an interesting area for future research. Customer characteristics and behavior can be studied intensively for this purpose.

Most e-grocers in the US offer items that are priced comparably to traditional grocery stores. A fee is often charged for delivery. The customers they target are those who look for an alternative way to shop for groceries. These convenience-sensitive customers are not the majority of customers; therefore, a niche market is often the best e-grocers can achieve. To attract price-sensitive shoppers, future research can focus on how e-grocers could offer prices that are lower than traditional grocery stores, and how e-grocers can achieve enough volume to make delivery charges as low as possible while still being able to make money.

At the time of the writing of this thesis, Amazon started to test its new AmazonFresh online grocery service in the Seattle area. Home delivery is currently offered to a limited number of Seattle neighborhoods with limited coverage. AmazonFresh uses Amazon.com's warehouses to fulfill orders. It recently changed its strategy and began to only offer service to Amazon Prime subscribers (AmazonFresh, n.d.). Amazon Prime is a program offered by Amazon.com where subscribers pay a $79 annual fee to get free two-day shipping on eligible items from Amazon.com (Amazon Prime, n.d.). This obviously limits the number of customers who are willing to use AmazonFresh's e-grocery service. Will AmazonFresh become another Webvan? What the future holds for AmazonFresh is still to be seen. Future research could look at AmazonFresh's business model and its relative success.

The road is still long for the online grocery business. There will be many ups and downs for the industry in the coming years. As various business models are investigated, studied, and tried, e-grocers may yet find one that realizes Webvan's original dream of replacing most brick-and-mortar shopping and bringing it into the online world.

Appendix A

Table of Current US Online Grocers by State (“Who Is Offering,” n.d.)

Table 1 Current US Online Grocers

State E-grocer Notes

Alabama None

Alaska King Soopers (Kroger) peach.kroger.com/sf/servlet/sto

refront

Arizona Basha's www.bashas.com

Safeway www.safeway.com

Arkansas None

California Yummy.com This is the trade name that

HomeGrocer.com now

operates under out of West

Hollywood, CA.

www.yummy.com

Safeway www.safeway.com

Albertsons www.albertsons.com

Colorado King Soopers (Kroger) peach.kroger.com/sf/servlet/sto

refront

Aspen Grove Market aspengrovemarket.gsngrocers.

com/splash_aspen.cfm

Connecticut Peapod (Stop & Shop) www.peapod.com

Fresh Direct www.freshdirect.com

Geissler's www.geisslers.com

Delaware Safeway In Delaware, Safeway uses

Acme to fulfill their orders.

www.safeway.com

Harris Teeter www.harristeeter.com

Florida Garden Grocer www.gardengrocer.com

Beach Groceries www.beachgroceries.com

Georgia None

Hawaii None

Idaho Albertsons www.albertsons.com

Illinois Peapod www.peapod.com

Potash Bros. www.potashbros.com

Busch's www.buschs.com

Indiana Grocery Stork www.grocery-stork.com

Iowa Homegroceryexpress.com www.homegroceryexpress.com

Kansas Homegroceryexpress.com www.homegroceryexpress.com

Kentucky None

Louisiana Robert Fresh Market www.robertfreshmarket.com

89

State E-grocer Notes

Maine None

Maryland Safeway www.safeway.com

Peapod (Giant) www.peapod.com

Santoni's www.santonismarket.com

Massachusetts Roche Bros www.rochebros.com

Peapod (Stop & Shop) www.peapod.com

Lees Market www.leesmarket.com

Michigan Oleson's Food Store www.olesonsfoods.com

Minnesota Lunds / Byerly's www.lundsandbyerlys.com

Simon Delivers www.simondelivers.com

Corborn's www.coborns.com

Mississippi None

Missouri Homegroceryexpress.com www.homegroceryexpress.com

Price Cutter www.pricecutteronline.com

Montana None

Nebraska Homegroceryexpress.com www.homegroceryexpress.com

Nevada Albertsons www.albertsons.com

Safeway www.safeway.com

New Hampshire None

New Jersey Peapod (Stop & Shop) www.peapod.com

Foodtown www.mywebgrocer.com/store/f

oodtown.html

Shoprite www.shoprite.com

New Mexico None

New York The Food Emporium www.thefoodemporiumshoponli

ne.com

Waldbaums www.waldbaums.com

Peapod (Stop & Shop) www.peapod.com

Fresh Direct www.freshdirect.com

D'Agnostino's www.dagnyc.com

Citarella www.citarella.com

My Brands Inc. www.mybrandsinc.com

YourGrocer.com www.yourgrocer.com

Gristedes www.gristedes.com

North Carolina Harris Teeter www.harristeeter.com

Lowe's Foods www.lowesfoods.com

North Dakota Hornbachers's www.hornbachers.com

Ohio Dorothy Lane Market www.dorothylane.com

Oklahoma None

Oregon New Seasons Market www.newseasonsmarket.com

Albertsons www.albertsons.com

Safeway www.safeway.com

Roth's www.roths.com

Pennsylvania Albertsons www.albertsons.com

90

State E-grocer Notes

Safeway www.safeway.com

Rhode Island Peapod (Stop & Shop) www.peapod.com

South Carolina Harris Teeter www.harristeeter.com

Lowe's Foods www.lowesfoods.com

South Dakota Homegroceryexpress.com www.homegroceryexpress.com

Tennessee None

Texas Rice Epicurean Markets www.riceepicurean.com

Family Center IGA www.familycenteriga.com

Super S Foods www.supersfoods.com

Utah Albertsons www.albertsons.com

Vermont None

Virginia Peapod (Giant) www.peapod.com

Harris Teeter www.harristeeter.com

Lowe's Foods www.lowesfoods.com

Washington Albertsons www.albertsons.com

Safeway www.safeway.com

Amazon Fresh www.amazonfresh.com

Washington, D.C. Safeway www.safeway.com

Peapod (Giant) www.peapod.com

West Virginia None

Wisconsin Peapod www.peapod.com

Sentry Foods www.sentryonthego.com

Wyoming None

91

Appendix B

Figure1. E-percent and adoption rates

Note. From “Ten years after Webvan: A profitable expansion of the e-grocery business,”

by T. Bates and S. Lauder, 2008, CST Research, LLC.

92

Appendix C

A Typical Online Grocery Transaction

Customer

Order Groceries

Select Delivery Methods

Make Payments

E-grocer

Website

Order Assembly

Deliver

Order

Customer

picks up

order

Relay Order

E-grocer

Figure 2. A typical online grocery transaction

93

Appendix D

Figure 3. Basic types of design for case studies

Note. From Case study research: Design and methods (3rd ed., pp. 40), by R. K. Yin,

2003. Copyright 2003 by Sage Publications.

Holistic

(single

unit of

analysis)

Single-case designs

CONTEXT

Case

Multiple-case designs

CONTEXT

Case

CONTEXT

Case

CONTEXT

Case

CONTEXT

Case

Embedded

Unit of

Analysis 1

Embedded

Unit of

Analysis 2

Embedded

(multiple

units of

analysis)

CONTEXT

Case

Embedded Unit

of Analysis 1

Embedded Unit

of Analysis 2

CONTEXT

Case

Embedded Unit

of Analysis 1

Embedded Unit

of Analysis 2

CONTEXT

Case

Embedded Unit

of Analysis 1

Embedded Unit

of Analysis 2

CONTEXT

Case

Embedded Unit

of Analysis 1

Embedded Unit

of Analysis 2

CONTEXT

Case

94

Appendix E

Peapod Delivery Areas and Expansion Timeline

Peapod delivers to (“Peapod LLC Corporate,” n.d.):

• Boston, MA • Long Island, NY
• Cape Cod, MA • Mt. Vernon, NY
• Fairfax County, VA • Medford, NY
• Montgomery County, MD • Rhode Island
• Washington, DC • Chicago, IL
• Cromwell, CT • Baltimore, MD
• Fairfield County, CT • Watchung, NJ
• Hartford, CT • Milwaukee, WI
• New Haven, CT • W. Danbury, CT

Expansion Timeline (“Peapod Company History,” n.d.):

1990 Evanston, IL

1991 Evanston surrounding suburbs and Chicago

1993 San Francisco, CA

1995 Columbus, OH

1996 Boston metro area

1997 Watertown, MA

1998 Long Island, NY

2000 Norwalk, CT and Washington, DC

2001 Virginia and Maryland

95

2002 Cape Cod, MA (closed 5 markets not strategic to Royal Ahold: Columbus, Dallas,

Houston, Austin and San Francisco)

2003 Hartford, CT and New Haven, CT

2004 Rhode Island, Mt. Vernon, NY, Baltimore, MD, Cromwell, CT. and Watchung, NJ

2005 Milwaukee, Wisconsin, Danbury, CT, Wanaque, NJ and Somerset, NJ

2006 Medford, NY

96

Appendix F

Safeway Delivery Areas

• Northern California: San Francisco, Marin, Greater North Bay, East Bay,
• Sacramento, San Jose, Peninsula, Monterey, Salinas
• Portland, OR
• Seattle, WA
• Greater Phoenix, AZ
• Maryland, Philadelphia, Washington, DC

97

Appendix G

Regular Peapod Delivery Fee

The following table shows the regular delivery fees for Peapod residential and

business customers:

Table 2 Peapod Delivery Fee

Residential

Minimum order amount:

$50.00

Over $100.00: $6.95

($75.00-$100.00: $7.95

Chicago and Washington, DC only)

$50.00-$100.00 (Less than $75.00 for Chicago and

Washington, DC): $9.95

Business

Minimum order amount:

$75.00

Over $150.00: $11.95

Less Than $150.00: $17.95

Note. From Peapod.com

98

Appendix H

Comparisons of Operational Strategies of Peapod, Tesco, Safeway, FreshDirect, Webvan and Streamline

Table 3 Comparisons of Strategies

Peapod most

markets

Peapod

Chicago &

Wash, DC

Tesco most

markets

Tesco S.

London

Safeway

FreshDirect

Webvan

Streamline

Mgmt

Competence

Have

knowledge

of grocery

business

Have

knowledge

of grocery

business

Have

knowledge

of grocery

business

Have

knowledge

of grocery

business

No

knowledge

of grocery

business

Have

knowledge

of grocery

business

Expansion

Strategy

Cautious

& slow

Cautious

& slow

Cautious

& slow

Cautious

& slow

Aggressive

& fast

Aggressive

& fast

Customer

Density

Average

Dense

Dense

Extra

Dense

Average Dense Average Average

Facility for

Orderpicking

SP WH SP WH SP WH WH WH

Inventory

Control

Hard Easy Hard Easy Hard Easy Easy Easy

Delivery

Strategy

Attended

Unattended

Attended Attended Attended

Pick-up

Attended Unattended

Target

Market

Residential &

Corporate

Residential Residential

Residential

&

Corporate

Residential

Residential

99

Website Well-designed Welldesigned

Welldesigned

Welldesigned

Welldesigned

Welldesigned

Note. “SP”=Store Pick, “WH”=Warehouse Pick

100

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i Competition in the US retail food industry has grown stiffer, due to lifestyle changes of consumers and the aging of the population. Traditional supermarkets continue to fight for market share with new players, such as discounters, drug stores, dollar stores, farmer's markets and CSAs (community-supported agriculture). With online pure-play grocers now joining them, according to CIBC (Canadian Imperial Bank of Commerce) World Markets, traditional supermarket chains have been steadily losing market share. In 1999, supermarkets sold 82.2% of food, discounters sold 7.9%, and dollar stores sold 2.6%. By 2004, supermarkets were down to 75.8% market share, discounters were up to 12.7%, and dollar stores were up to 4%. Wal-Mart is seen as one of the major threats to the existing supermarkets (Anonymous, 2005).

In 2006, the top four food retailers in the United States were Wal-Mart, Kroger, Albertsons, and Safeway (Green, 2006). Online grocery ordering and delivery provides a new distribution channel for brick & mortar stores. Driven by market pressure, supermarkets welcome this new competitive edge that would help them maintain, and even gain market share against competitors.