Excerpt
Table of Contents
1. Introduction
2. Basics of E-Commerce with groceries
2.1 Potential customer groups and their benefits
2.2 Success factors
2.3 Problems
3. Current situation in Germany
3.1 German food retail industry
3.2 E-Commerce with groceries: Status Quo
4. Discussion: How online shopping of groceries could affect the food industry
5. Conclusion
List of References
List of Tables and Figures
1. Introduction
In recent years, E-Commerce has grown rapidly– companies like Amazon or eBay influence our daily life more and more. The Internet provides endless trading opportunities and one particular phenomenon is online shopping of groceries. In the US-market, this kind of trade has its origin in the late 1980s (Morganosky & Cude, 2000) but nonetheless firms are still testing suitable business concepts because groceries are said to be one of the most difficult goods for E-Commerce (Raijas, 2002). Germany’s online market is also growing and has great potential. It is currently not possible to say how exactly the regular food market will react to the increasing number of food sales on the Internet. However, some of the potential consequences can be predicted. The purpose of this paper is to investigate which effects the introduction of the Internet, and thus E-Commerce with groceries, could have on the “traditional” German food industry.
At first, the paper explains general aspects of E-Commerce with groceries and focuses on potential customers, the demanders, as well as on factors influencing companies, the suppliers. The next section deals with recent characteristics of Germany’s food industry, hence concentrates on the actual demand and supply at both the retail sector and the online trading sector. Subsequently, the previous sections are connected and possible effects of E-Commerce with groceries on the food market are described. Finally, a short conclusion summarizes the most important points.
2. Basics of E-Commerce with groceries
In order to examine the possible effects on the food industry, it is a matter of considerable importance to understand how E-Commerce in this sector works. According to Morganosky and Cude (2000), there are basically two different types of online food retailers. Online retailers, which are like virtual supermarkets, only exist on the Internet and deliver the food to the customers’ home. In contrast to this, store-based shopping services enable customers to pick up the groceries at the store once they have ordered them online or they can decide that the retailer should deliver the food directly to their homes. The range of possibilities is enormous and many different business models exist.
2.1 Potential customer groups and their benefits
Several studies found that there are different profiles of Internet shoppers who are attracted to purchasing their food online. These profiles primarily focus on demographic and psychographic criteria (Ramus & Nielsen, 2005). From a general point of view, the study of Allred, Smith and Swinyard (2006) emphasizes the significant differences between online-shoppers and online non-shoppers. For instance, online shoppers are “younger, wealthier, better educated, have higher ‘computer literacy’ and are bigger retail spenders” (p. 328), compared to online non-shoppers. Interestingly, they also tend to be “less fearful about financial loss resulting from online transactions” (p. 328).
Morganosky and Cude (2000) analyze in their study the demand for and the consumer response to online grocery shopping. It emerges that many shoppers are young and have children and have a relatively high income, which seems to be an important factor. But not only mothers with small children could benefit from online grocery shopping; also people with physical disabilities are a potential consumer group. For example, elderly customers, who may have problems with carrying or lifting groceries, are more likely to use food delivery services.
These findings coincide with the outcome of a study from Keh and Shieh (2001) which examines success factors and pitfalls of online grocery retailing. According to them, potential customers are time-starved households, for example “couples with two careers, children and above-average income” (p. 75). For this customer group, the main reasons to buy food on the Internet are saving time and convenience. In the case of seniors, online shopping can help to give them back a feeling of independence.
Of course, this is not a complete list – there are many more reasons that attract different groups of people to buy groceries online. Yet, the described customer groups are widely denoted in the relevant literature. The following table provides additional information about these groups:
Table 1. Potential customer groups of online grocery shopping.
illustration not visible in this excerpt
From: “The consumer benefits and problems in the electronic grocery store” by A. Raijas, 2002, Journal of Retailing and Consumer Services, 9(2), p. 108 (Table 1). Copyright 2002 by Elsevier Science Ltd.
2.2 Success factors
From the suppliers’ point of view, identifying customer groups is not the only important step in the implementation of a profitable online grocery business. Tanskanen, Yrjölä and Holmström (2002) underline that E-Commerce with groceries is about developing “unique relationships with costumers” (p. 176) and they show that other vitally important factors include creating and maintaining customer confidence, providing a high service level and taking care of operational efficiency. High-quality service means for instance that the website is easy to access, clearly structured and user-friendly. Furthermore, as much information as possible on the products should be provided and customers should have the possibilities to save their orders for later use (purchasing history). Suppliers should also provide other value-adding information, such as suggestions for recipes, cooking tips or nutritional data (Keh & Shieh, 2001).
The warehousing and logistics system should be well-conceived because otherwise companies could face problems concerning the cold chain. Especially in the case of perishable food, they need to obey food control regulations (Lindner & Rennhak, 2012) and moreover, an efficient distribution concept enables suppliers to keep their costs down. As a result, they can set a reasonable price at which shoppers are willing to make purchases.
Another significant point is the range of products, which should preferably cover the weekly purchase of an average customer. Therefore, a broad assortment – a real alternative to the local supermarkets – is desirable (Lindner & Rennhak, 2012). That is, selling not only specialties or gourmet food, but every other kind of food a typical household needs.
2.3 Problems
The bankruptcy of the company Webvan, and a few other noticeable failures of American Internet food retailers in the early 2000s, illustrated how problematic E-Commerce with groceries is (Ramus & Nielsen, 2005). As already mentioned, it is essential that the suppliers develop adequate logistics systems. If the delivery costs and time are inappropriate, it is more likely that costumers are reluctant to shop online. Furthermore, heavy users of electronic grocery stores (EGS) often complain about problems concerning product search and uncertainty about the groceries’ quality (Raijas, 2002). Since customers cannot physically view and select the food like in regular supermarkets, mistrust is a comprehensible fact. Raijas concludes that the main problems of EGS “focus on (1) information search and processing, (2) product assortment, quality and search and (3) price level” (p.112).
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