“E-commerce, short for electronic commerce, is a business transaction that occurs over an electronic network such as the Internet” (Shelly and Vermaat, 2008, p.91). E-commerce has many forms and variations and online food and grocery retailing is one of them.
A brief history of e-commerce and online shopping has to be mentioned briefly in order to explore the research topic more effectively. Using relevant information from the works of Liu (2007), Botha et al (2008), and Shelly and Vermaat (2008) the evolution of internet and e-commerce until the point when it became possible to buy food and grocery products online can be summarised into the following stages:
|Time and Period||Evolutional Stage|
|1969||The creation of ARPAnet and the evolution of TCP/IP|
|Beginning of 1980s||Popularity of personal computers with decreasing costs and increasing processing power; WANs and LANs becoming necessity requirements.|
|Mid 1980s||Size of the internet becoming significant|
|1990||Introduction of WWW with HTTP and HTML|
|Beginning of 1990s||The creation of general browser technology and search engines|
|Mid 1990s||Business integration problems are solved through the introduction of intranets and extranets|
|1995||Dramatic popularity of online shopping with the introduction of amazon.com|
|End of 1990s||Online payment made easier with the introduction of PayPal and Google is introduced|
|Beginning of 2000s||Security measures of paying through credit cards are increased.|
|Mid 2000s||Introduction of YouTube and Google Checkout|
|End of 2000s||The amount mobile shopping is increased dramatically with the introduction of IPhone|
Zapalla and Gray (2006) mention the concept of “E-Business Adaptation Ladder” proposed by Nachira (2002) that divides the process of evolution of e-business to its current stage into the following six stages:
- Stage 1 – introduction of e-mail as one of the most efficient business communication methods
- Stage 2 – with the introduction of websites businesses gained access to world markets
- Stage 3 – e-commerce was introduced and the convenient procedures of ordering and paying online changed global business environment irreversibly
- Stage 4 – with the development of e-business the supply-chain operations of the business were integrated
- Stage 5 – the concept of networked organisations introduced and the principles of open information with customers, suppliers and business partners are widely embraced
- Stage 6 – with the advent of digital ecosystem such business concepts as knowledge sharing, natural selection and the evolution of services were promoted.
It has been stated that “an interesting aspect of the massive growth of food e-commerce has been the emergence of a wide of business models through which retailers attempt to organise the delivery of services” (Graham, 2004, p.226).
Authors state that the advent of mobile internet technology positively contributed to the share of online sales of major food and grocery retailers. For instance, according to Freedman (2010) after Ocado launched its IPhone application in 2010 the sales within the first two months that have been done through the application have amounted to 2% of total amount of sales for that period of time.
However, the author also mentions serious shortcomings associated with food and grocery shopping through mobile phones that include small size of the screen, costs associated with the usage of mobile phone, longer duration of time required in order to do shopping through mobile phone, as well as problems associated with the battery charge of mobile phones
Nevertheless, “sceptics who can’t imagine ordering fresh tomatoes, sirloin steak, or milk online because they can’t squeeze or sniff or see the goods may be surprised when they visit Peapod site for the first time” (Daft, 2008, 744). In other words, buying food and grocery products have been associated with the experience of touching, feeling and psychically buying the products for a long period of time, and some people may find it difficult to accept that these products can be purchased online.
The confirmation of this statement is the presented in the following figure as presented by Ambrian – global corporate finance company (2010, online).
As it can be seen from the figure above the share of online food sales have been considerably lower than the share of online sales of entertainment, electrical, and books and they have also been lower from the volume of sales of clothing and health and beauty products in UK. The explanation for these differences offered by Daft (2008) relate to the viewpoint according to which people do not feel comfortable to buy their food and grocery products online due to concerns about the quality of the products and a range of other reasons.
Current Tendency in Online Food and Grocery Retailing in UK
Secondary data authors have provided some analysis and insights regarding the current tendency in online food and grocery retailing in UK. It has been estimated that “the online food market was worth £3.2 billion in 2008, and is growing by an average 4% every year” (UK Market Synopsis, 2009, online). Specifically, “online food and grocery sales at Asda, Sainsbury’s, Tesco and Ocado (the online retail distribution partner of Waitrose) have risen by 35% since 2008” (UK Market Synopsis, 2009, online).
It also has to be noted that “online shopping has grown mostly in areas where the product is fairly standard in its approach. For example, if a customer sees a book they like in a bookstore at full price then they are likely to go home and look at Amazon to see if they can get it cheaper” (Jones and Beamish, 2006, p.224)
Burstein and Goodbody (2008) warn that when analysing the online share of food and grocery products for a specific period of time the performance of food and grocery sector in general within the relevant period have to be taken into account as well. In other words, the issue of the performance of online sales can not be studied separately from the tendencies within the sector in general. Accordingly, the following figure prepared by IGD provides the picture about the performance of UK grocery market for the last ten years
Source: IGD Research 2010
As it can be seen from the figure above the size of the food and grocery market in UK has been growing consistently with year-on-year growth fluctuating for the last ten years. Accordingly, this specific information has to be taken into account analysing online share of food and grocery sales in UK.
Moreover, there have been some estimations regarding the future performances of online food and grocery retailers. For instance, Rothwell (2008) predicts UK food and grocery market to be worth £170 billion by 2013. However, such estimations can not be relied upon taken on their own for decision-making as there are ranges of additional factors needed to be taken into account. The list of such factors is extensive and includes possible global economic crisis, fluctuating rate of UK currency, interest rate, level of unemployment and others.
Padbury (2007) mentions about a large scale survey that has focused on future online food and grocery shopping behaviour among UK population by dividing them into three categories on the basis of their ages. The following figure illustrates the main findings of the survey:
Source: IGD web-site
Differences between Online and Offline Stores and their Practical Implications to Businesses and Customers.
There can not be arguments about the issue that the main differences between online and offline marketplaces are clear: in a physical store a customer travels to a certain distance in order to do a shopping and returns home carrying his or her shopping in hand, whereas in online marketplace the shopping process usually takes only few minutes or even seconds and is done from the comfort of the house.
Nevertheless, secondary data authors (Sullivan and Adcock, 2002, Dennis et al, 2004, Bruce et al, 2004, Liu, 2007, Vermaat, 2008, and others) focus on the differences between online and offline retail stores with the greater determination and offer their explanation about the practical implications of these differences to the businesses, as well as consumers.
First of all, it is noted by authors that “the convenience and flexibility of online retailing is based on the ability of the shopper to have access to a wide assortment of products at the ‘click of the mouse’. Online retailers are not constrained by store size, so can offer as many products as can be efficiently handled” (Sullivan and Adcock, 2002, p.329)
The differences between various aspects of physical score and online store are summarised by Bruce et al (2004) in the following manner:
|Physical store||Virtual store|
|Space||Space in shelvesThe amount of square footage||NavigabilityDesign of web-pages|
|Customer traffic||Size of the store||Bandwidth of website|
Moreover, according to Dennis et al (2004) non-store shoppers or even electronic shoppers were not created by internet. Characterisation of in-home shoppers is mentioned by Dennis et al (2004) as taken from Gillett (1970) as a type of people who:
a) Like shopping, but do not like crowds, and are prepared to buy things without hadling them;
b) Seek greater product assortment and convenience;
c) More sensitive about the price element associated with products;
d) Tend to make unplanned purchases.
A massive research focusing on various aspects of customer and online retailer relationships has been conducted by Liu (2007). Some of the most notable conclusions of that research are illustrated on the following points:
First, it is considerably difficult for online retailers to increase the rate of their customer loyalty because the scope of their contact with customers is limited to online platform. However, this statement only relates to businesses that have online presence only, without offline branches and the main online food and grocery retailers in UK have their offline presences. Therefore, this specific finding of the research does not fully apply to the current paper.
Second, online retailers have to offer substantial benefits to their customers in forms of price advantages, reducing the perception of risk associated with their website, and making it easier for the customers to navigate through the web-site and search required information effectively and efficiently. Such type of advices have also featured in works of Khosrowpour (2004), Vermaat (2008) and Oliver (2009) and apply online food and grocery retailing business along with a range of other businesses.
Third, the quality of information about products and the variety of products have to be improved in a continuous basis in order to online businesses to increase the level of their customer attraction. The importance of website-wide search engine in terms of assisting site visitors to find the type of information they are looking in an efficient manner is highlighted by Oliver (2009).
Fourth, online retailers have to adopt a proactive approach in dealing with online shopping behaviour of their customers. Specifically, authors highlight offering shopping incentives as one of the most effective measures in order to achieve this objective.
Shepherd (2007) identified the following ten most common reasons of failure of online businesses: a) website constructed in an unattractive way; b) inability to comprehend the target audience; c) failure of competition analysis; d) inability to adapt to the changing marketplace; e) ineffective business and financial planning; f) inappropriate pricing strategy; g) inability to achieve the customer trust; h) ineffective level of customer services; i) inappropriate niche chosen for the product; and j) poor quality of products
Specifications of Online Food and Grocery Retailing
Authors have offered their viewpoint regarding specifications of online food and grocery retailing and analysing various aspects of online food and grocery shopping. It has been said that “shopping is more than buying because of the different ways in which it can be done, the different effects which it can have on the shopper, on staff in a shop or a call centre, on other customer, and those for whom the shopping might be done” (Shaw, 2010, p.2)
There have been attempts in the literature to link the level of technological activeness of individuals and families and their aptitude to engage in online shopping for food and grocery products. Specifically, it is said that “for a household, online grocery shopping not only implies a way of facilitating the everyday life of consumers but also demonstrates a positive relationship with technology in general and to the internet in particular” (Dholakia, 2002, p.89)
Khosrowpour (2004) summarises his literature review on the subject of online grocery shopping with a statement like “internet shopping model appears critical to the success of e-retailing for grocery shopping; consumers’ profiles, the motivation and concerns of online grocery shopping have not been agreed upon. This triggers the need to further examine the internet business models and customers’ view of shopping groceries on the internet” (Khosrowpour, 2004, p.76)
Various Levels of Success Factors of Online Food and Grocery Retailing
Loh (2006) divides factors that affect the intensity of online food and grocery retailing into four levels: consumer, organisational, industry, and national levels. All of the factors associated with each level need to be studied comprehensively in order to explore the research questions effectively
Main factors affecting the success of online food and grocery retailing include accessibility and demographic factors (Loh, 2006). Accessibility factor relates to the extent at which perspective customers of online food and grocery retailers have access to the internet. This specific factor is changing in favour of online food and grocery retailers in a way that the numbers of people who do not have access to the internet are decreasing.
Demographic factors within consumer level include age, sex, ethnic origin, level of education, level of income etc. Each of these variables do affect the success of online food and grocery retailers in a different way, and therefore need to be addressed by online food and grocery retailers in an individual manner.
Factors of success of online food and grocery retailers can be analysed in organisational level as well in which case the relevant factors would include management of internet perspectives, product and price offering, customer service offering, enabling service offering (debit cards, credit cards), interface quality (web-design).
Greater analyses of each of these individual factors as offered by other researchers are illustrated in the following section of the present chapter of the work.
The main success factors of online food and grocery retailing in industry level include supply-chain management, competition in internet service provider and computer industry, technology. The role of supply-chain management is explored by Graham (2004), who specifies three ways in which the operations of online food and grocery retailers can be arranged.
Namely, deliveries of food and grocery products purchased online can be brought from the nearest offline stores of the company, products can be brought from specifically designed warehouses, or deliveries can be arranged through third-party businesses, such as Ocado, that does the same type of service for Waitrose, one of the leading food and grocery retailers in UK.
The main factors that affect the success of online food and grocery retailers include regulation and laws, telecommunication infrastructure, enabling service infrastructure, logistic infrastructure. These issues are explained comprehensively in the work of Loh (2006). It has to be noted that all competitors in UK are affected by the factors at a national level in the same manner, but the response to these factors from each individual company depends on a range of other factors that include competitive edge of the company, the amount of resources the company possesses etc.
Moreover, factors of success at a national level do not present substantial disadvantages for online food and grocery retailers in UK due to the fact that the level of telecommunications infrastructure in UK, enabling service infrastructure, as well as the quality of rules and regulations are considered to be effective in many merits.
Factors of Success for Online Food and Grocery Retailing
Literature review has revealed at a large extend inconsistent results regarding the formulation factors of success for online food and grocery retailing. Regarding this topic it has been suggested that “when designing online grocery systems, a key concept to consider is the aisle layout of conventional self-service grocery stores. Designers of online grocery systems need to understand the ‘mental models’ that users associate with grocery shopping in the ‘real-world environment” (Oliver et al, 2009, p.145)
In order to research this specific point in a greater depth more information needs to be provided about mental models. Major work focused on mental models has been conducted by Gentner and Stevens (1983) and Botha et al (2008) have attempted to link the findings of these authors to online food and grocery shopping in the following manner:
First, mental models are not complete. In relation to online food and grocery retailing this point can be interpreted in a way that people have tendency to form their mental models in relation to online food and grocery retailing along with a wide range of other issues.
Second, people possess limited control of their own mental models. In other words mental models can change if subjected to a certain type of external effect. Specifically, Botha et al (2008) state that online food and grocery retailers can affect mental models of their potential customers and achieve desired outcome through effective marketing initiatives.
Third, mental models are not stable. It means that not only marketing initiatives of online food and grocery retailers, but also a range of other issues and factors, such as the intensity of online scamming, the quality of internet connection and other can cause the mental models of individuals towards online food and grocery retailing to change.
There are also suggestions that “online grocery businesses need to focus much more on the practices and values of consumers, especially on the consumer problems of being virtuous, that is buying, cooking and eating the right, responsible, not too risky, not too expensive, but interesting/educating products” (Kornum and Bjerre, 2005, p.151)
Functions and Capabilities of Website
Burstain and Goodbody (2008) place great emphasize on the functions and capabilities of site-wide search engine when discussing the success factors of online food and grocery retailing. According to these authors only those websites will be able to achieve solid customer attraction and retention rates that are able to provide customers the opportunity of finding products and any information related to them in an efficient manner.
Effective Checkout System
Having simple and straightforward checkout has been highlighted as another factor of success by Gourville (2006), who states that customers will be put of from using web-sites that involve several stages of payment for the food and grocery products that people buy on an continuous basis. Similar opinions can be found in works of Awad (2003) and Shelly and Vermaat (2008) as well.
Effective Marketing Plan
Dahlen et al (2009), on the other hand, maintain that marketing plan for an online retail business, including online business selling food and grocery products have to have effective marketing plan in order to be successful. The authors stress that there are several fundamental differences between offline and online marketing initiatives, and these differences need to be addressed in an effective manner when devising marketing strategies for online food and grocery selling business.
Specifically Dablen et al (2009) state that food and grocery retail web-site has to offer specific incentives for customers in order to make repeated purchases. Incentives of such a nature might include online sales promotions, various types of discount coupons, as well as cross-website price checks that allow customers to highlight its competitive prices for some of its products against the prices of major competitors of the company.
Trustworthiness of Website
The importance of trustworthiness of web-site as a success factor for online retailing has been mentioned by Award (2003), Khosrowpour (2004), Pozzi (2009) and others. The rationale behind their argument is quite simple. As the role of internet is increasing in professional and personal lives of people, with online transactions committed online amounting to millions of pounds, the amount of people and attempts to gain financial benefit from the situation in an unlawful ways are increasing as well (Shellly and Vermaat, 2008).
As a result, people hear various stories about people becoming victims of identity thefts losing money from their debit and credit cards after getting engaged in various types of online transactions and develop concerns regarding buying items online. Therefore, an element of trustworthiness associated with each individual web-site selling food and grocery products has been listed to be one of the most important factors of success.
Search Engine Optimisation
According to Schiniederjans and Cao (2002) optimisation for search engines can be mentioned as another success factor for online retail. While this statement might be true in relation to most of the other consumer products, the relevance of optimisation for search engines in relation to food and grocery products is under doubt. This is because people usually do not search for food and grocery products online, their usually buy them from their favourite brands online. This viewpoint is supported by Burstain and Goodbody (2008), who state that when people start buying their food and grocery products online they usually do online shopping form the brand they were with when doing offline shopping.
Quality design of the website, as another important success factor has been mentioned in the works of Khosrowpour (2004), Botha et al (2008), Pozzi (2009) and others. Botha et al (2009) explore this specific factor in greater depth and link quality design of the website to psychological traits of website visitors. Specifically, authors mention the importance of animation, graphics, and the use of colour in terms of attracting customers by design of the web-site.
Personal Attention to Customers
Oliver et al (2009) mention personal attention to each individual customer as an opportunity e-commerce offers to businesses. The main components of personal attention to customers have been mentioned as automatic purchase suggestions based on the previous purchases, the shopping list stored automatically for repeated purchases with the possibility of some modifications, effective customer services through animated customer service assistants conducted on the website, as well as human customer services assistants conducted over the phone and others.
Discussion Platforms in Website
According to Shelly and Vermaat (2008) effective e-commerce organisations strive to offer discussion platforms on the websites on the topics directly related to the products and/or the organisation offers. Discussion platform can be organised on the forms of chat rooms, forums, discussion boards etc. where members offer their viewpoint regarding various issues related to the business practice of the company.
Image of Online Food and Grocery Retailers in UK
The issues associated with the image of online food and grocery retailers have been mentioned by majority of secondary data sources, therefore separate section from success factors discussed above has been devoted to the image of online food and grocery retailers in this research.
Regarding this specific issue it has been stated that “the use of online information sources shifts depending on the type of product, with the internet becoming less relevant the more established a brand and its corresponding websites are. Customers are tend to read reviews from other users for more technical and complex products” (Heinemann and Schwarlz, 2010, p.12).
In other words, one of the most important distinctions between online and offline marketplace relates to the fact that in the case of online marketplace existing and perspectives customers of a business are able to communicate with each-other information regarding the various aspects of the product, and thus they have a direct influence to the image of the company.
However, Heinemann and Schwarlz (2010) state that with the existence of effective management and substantial real and perceived benefits associated with products and services of the company businesses should be able to achieve a situation where product reviews serve as an additional marketing for the company.
As it is stated above product reviews mainly relate to more technical and complex type of products. Nevertheless, online food and grocery retail companies in UK can increase the numbers and scope of benefits and conveniences associated with their products, and generate positive reviews and discussions about their brand in online forums, and thus increase their share in online marketplace.
Oliver et al (2009) mention different type of challenge online retail businesses have to face when attempting to create positive image in the perceptions of current and perspective customers. Specifically, all their activities of image creation are limited within the online environment, and unlike offline retailers, online retailers are not in the position to impress the customers with the design of the store in physical terms and superior level of customer services provided face-to-face.
The Role and Impact of Additional Factors
The role and impact of additional factors affecting online food and grocery retailing can be explained by referring to e-tailing. The term ‘e-tailing’ is short for electronic retailing and relates to the selling the goods over the internet (Qin, 2009). Xu and Quaddis (2010) formulate the following factors of successful e-tailing. Each of these factors can be analysed in relation to online food and grocery retailing.
a) Organisational factor. The impact of organisational factor on e-tailing is straightforward in a way that it is not possible to establish a successful business practice without effective organisational systems and procedures not only in online food and grocery retail business, but in any type of business in general.
b) Senior management factor. The effectiveness of senior level management in food and grocery retail in terms of formulating long-term aims and objectives is considered to be one of the main success factors.
c) E-commerce strategies. The choice of appropriate strategy, as well as the level of efficiency of its implementation also play significant role in the success of online food and grocery retail companies.
d) External factor. External success factors for online food and grocery e-tailing include macroeconomic climate within the country, the level of inflation, unemployment rate etc.
e) Consumer factor. Relevant consumer factors to the success of online food and grocery e-tailing are consumer preferences, demographic and psychological variables associated with each consumer segment, financial circumstances of consumers and others.
f) E-commerce system measurement. Specifically, appropriate measurement systems need to be in place in order to online food and grocery e-tailing to be functioning in an effective manner.
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