Groceries and other food retailers operate in one of the more mundane, yet fundamental and pervasive industry segments in the world. Consequently, the grocery industry is a huge, fragmented and enormously competitive environment. The intense competition is often described as leaving supermarkets to operate on razor thin margins that averaged 1.03 percent of sales in 1997-1998 (Weir, 27-45).
The most prominent of these companies was Webvan, which reached a stock market value of $7.9 billion at the end of its IPO. Webvan, Home Grocer, PeaPod and several other Internet grocers made huge bets that selling groceries online was a growth market and represented a new way of doing business. Unfortunately, as has been illustrated by the widely publicized collapses of these high profile Internet grocers, there was a substantial gap between theory and practical application.
In contrast, there are currently several examples of grocery and other food delivery companies that appear to be making effective use of the Internet as a link with customers. In particular, both Tesco in the UK and Albertson's in the USA currently have Internet channels for selling groceries that are profitable (Hall, pp.A9; Koller, 13-14). Whereas many of the failed Internet grocers appeared to be hoping to capture a large portion of the overall grocery market, companies such as Tesco and Albertson's view Internet ordering of groceries more as an additional sales channel. This channel is unlikely to ever represent a majority of grocer sales, but even a small portion of sales can be quite significant due to the huge size of the overall market.
We will first focus on t ...