Waitrose: Planning the Online Drive - Case Study Example

Waitrose: Planning the Online Drive 2009 Introduction In the United Kingdom, competition has intensified among supermarkets tremendously over the last decade or so as consumer spending on food and grocery has stagnated, land has become scarce and out-of-town planning regulations have made supermarket expansion increasingly difficult (Hawkes, 2008). As a result, companies have had to introduce innovative selling, sourcing and supply chain management strategies in order to maintain the competitive edge. While large retailers like Tesco has aggressively increased the number of stores, and sourced products from across the world in order to maintain margins, Marks and Spencer’s Simply Food, launched in 2001, has concentrated on high-street market segment. Smaller chains like Waitrose have increased the product portfolio from food and grocery to non-food items as well. Although the sales of traditional food and grocery have stagnated, that of other items like fresh food, organic food and ready meals, in which Waitrose has specialized, has increased. Besides, different channels of selling have emerged, like home delivery and electronic shopping, putting more pressure on the supermarkets which therefore offer various in-site and off-site facilities like fish counters, pharmacies and petrol stations, to woo customers. In this report, I will develop a business plan for Waitrose’s online presence to take on its rivals. Structure of supermarket competition Nearly three-fourth of the bread, milk, fruit and meat are sold in the UK through the supermarkets (Fox and Vorley, 2004). Food service through supermarkets, typically that of fast food, is 30 percent of total consumer spending on food and it is expected to grow to 50 percent by 2020. It is, however, not possible to estimate the total market share of supermarkets in retail sales of food, grocery and household goods since the market is heterogeneous. The convenience sector, valued at $27bn, is the largest segment of the UK grocery market. Each supermarket chain has a particular segment, caters to a certain section of the population and types of location and has a differentiated format. For example, the ‘big four’, that is Tesco, Sainsbury’s, Asda and Morrison have one-stop stores of over 4,000 square meters each at the edges of towns and cater to all price points. Waitrose and Booths are up-market convenience retailers while Lidl and Aldi are ‘deep discounters’ targeting the lower social classes. However, over the more recent years, these distinctions are blurring as the players are attempting alternate formats. For example, Tesco purchased T&S in 2002 that brought to its fold 1,000 convenience stores. Also, most of the supermarkets are diversifying from food and grocery, the traditional products sold through this format, to include other non-food items like electronic goods, apparel and ready-to-eat food service. Such “channel-blurring” has been necessitated by intense competition among the players (Fox and Vorley, 2004). However, more and more retailers are now entering the convenience store market, which has been the mainstay of Waitrose (Hawkes, 2008). Ownership of supermarket chains is as varied as the formats. For example, Tesco, Sainsbury, Morrisons and Asda (owned by American retail giant, Wal-Mart) are public limited companies; Booths is a family-owned company; shares of Waitrose are held by employee groups of John Lewis Partnership). As for the geographical spread of supermarkets, Waitrose and Sainsbury are prominent in South England while Asda and Morrisons (prior to the merger with Safeway) have a dominant presence in the north. Tesco has a national as well as international presence, with 20 percent of its revenues from abroad (Fox and Vorley, 2004). There has been a lot of concern about entry barriers for small stores like Waitrose and local convenience stores that the ‘big four’ raise. Tesco and Asda control nearly 47 percent of the market share in the UK. Both companies have created entry barriers for competitors and increased revenues by cutting on costs through effective sourcing strategies that enable low product prices, low labor costs, economies of scale by expanding at a high speed and efficient supply chain management and shelfing. Spiralling supermarket growth has been achieved in the United Kingdom through economies of scale and low costs of merchandise (Burt and Sparks, 2003). The only restriction that the big supermarkets face is land acquisition since these are essentially big format stores (BBC News, 2006). Waitrose’ business strategy Waitrose has a more up-market innovative format in its 190 stores than its rivals. It is comparable to the upmarket retailers like Wegman’s or H.E. Butts in the United States, to the extent of having in common the brick-oven-pizza with that of Wegman’s. The innovations in format paid off with Waitrose’s revenues growing 6.4 percent in the second half of 2004 when consumer spending in the United Kingdom was sluggish. Although Waitrose has a national market share of about 3 percent, its share in south of England is 7 percent. After purchasing 19 stores from the Morrison stable, it marked its footsteps in north England as well. Waitrose’s 190 stores are smaller than other supermarkets, with an average of 25,000 square feet each. Waitrose stores are classy. For example, Waitrose’s 70,000 square feet Canary Wharf store is considered to be a fashionable joint to be in. The additional features like service counters for juice, sushi and deli products and the wine bar entice up market customers. Waitrose has not attempted to compete with other convenience stores and has concentrated on its up-market positioning (Duff, 2005). Being an up-market store chain, Waitrose sells more organic food produced locally, following the government’s Organic Action Plan that encourages retailers to sell 70 percent of its organic products sourced domestically (Green and Smithson, 2005). Waitrose sources 25 percent of organic apples, 99 percent of organic beef, 98 percent of organic carrots, 98 percent of organic chicken from UK suppliers. Waitrose does not stock conventional products like other supermarkets do. For example, premium organic eggs like Columbian Blacktail Eggs are stocked rather than typical intensive battery eggs although the former are three times costlier than the latter category (Elm Farm Research, 2006). Since Waitrose is the only superstore chain that sells CBT eggs, it has a dedicated supplier, Stonegate, for this product. The brand has been jointly developed by Waitrose and Stonegate. There are other dedicated organic product suppliers to Waitrose, like Rachel Rivers who has a 200 bird unit in Wiltshire. Waitrose has a select list of suppliers, most being regional suppliers. Waitrose’ online presence Waitrose is present online through Ocado, the online delivery company in which the John Lewis Partnership owns 29 percent as well as Waitrose Deliver since 2001. Waitrose has been judged as the most popular online supermarket according to customer surveys (FinanceNews Online, 2007). Customers are satisfied with Waitrose particularly in terms of quality of products and shelf availability. As the competition in the online grocery market is heating up, Ocado is offering Waitrose products online at a discount, not only by scrapping the delivery charge but also by offering products cheaper than at Waitrose physical stores as well as at Tesco and Asda. Although various promotions are routinely made at the stores, the online sales are at even lower prices, which might even turn loyal Waitrose customers away from the stores. This step by the company is significant as Waitrose has traditionally targeted the well-heeled customer while the 75,000 Ocado customers are typically middle-class (Wallop and Fletcher, 2009). Improving online presence While e-commerce has enabled Waitrose to sell larger volumes at lower prices than through the brick-and-mortar retail market, there are challenges to develop an appropriate e-commerce application in terms of architecture, tools and platforms that are continuously evolving. Developers are particularly concerned with content-rich applications, security, application scalability and speed. Designing an e-commerce solution and maintaining it requires a consolidated Information System strategy. It is not a start to finish project, instead an e-commerce solution is a continuous project that lasts as long as the product does. Every aspect of the online platform should be measurable, unlike the traditional platform. For example, we should be able to know how many customers visit the site and particular pages daily, how many items are loaded on to the shopping cart, how many sales are converted and the specifications of the products sold. This will enable us to introduce promotions effectively as well as place advertisements in accordance to demand of products. The website should clearly state the prices of the products along with the shipping charges. The pricing structure will need to be in sync with existing e-commerce sites for similar products. However, the price should capture all aspects of costs like credit card transaction charges, taxes, insurances, etc. Other issues of payment security, like authentication of payment security, date of delivery on completion of order placing should be clearly communicated. Besides, there needs to be contact details so that customers can communicate in case of problems. Layout and navigation options of the web site are the most crucial aspects of the ecommerce application. The product or the service should be available with the minimum number of clicks. The website should be easy to navigate so that it can draw a larger number of customers than one that is jumbled even when it provides many services. Website design in terms of color, layout, fonts, arrangement of products, signage and availability of items are crucial for the success of the online retail platform. Personalization is the key to increase traffic to the e-commerce website. Personalization can be static, dynamic or intelligent. In static personalization, content is presented according to demographic preferences; in dynamic personalization, content is altered according to customer’s past buying habits; and in intelligent personalization, content takes into account consumer preferences with merchant’s offerings as well as the time, budget and other constraints. It should be ensured that access to web pages should be properly secured and there is no loss of customer information. The location where source codes are stored should be regularly reviewed and the people who have accessed the location should be monitored. Payment transactions are the most contentious issue for e-commerce as customers hesitate to part with credit card or bank account information unless guaranteed of security. There should be all precautions so that financial information of customers is not revealed to third parties under any circumstances. For this, encryption software and authentication are the most used techniques. In the encryption programs, cryptographic algorithms are used to convert ordinary messages into unique codes that can be unlocked only by the individuals who have the encryption key. By using a private key, users can keep their encryption most secure. There are various ways for online marketing of e-commerce businesses. Since the aim is to reduce costs of marketing, the internet provides various cost-saving opportunities to market products than through the traditional print, radio and television advertising. Banner ads as well as links-cross links, directories, newsletters can be placed in related sites and in websites where customers usually travel to Waitrose.com or Oncado from. This can be done by web traffic analysis through slicing the web server log usage data. By ranking popular pages, the entry and exit points of the user may be tracked. However, a web visitor may not necessarily be converted to make purchases on the store. Typically a microconversion rate on an online store is a four-phase process: product impression, click-through, basket insertion and purchase. Analysis needs to be made about product impressions that are converted to click throughs, which are in turn converted into basket insertions and finally to purchase (Klasnja-Montenegro, 2005). The e-commerce business is guided by the same legal and ethical environment as the traditional business except that the business is now conducted in apparently more unregulated circumstances. Since the internet is not bound by geographical territory, there may be a tendency to bypass the legal environment of a particular country. Conclusion Thus, Waitrose’ online presence can be further improved by making the website more sophisticated and developing it like an e-commerce site. At present, the online channel is part of a multi-channel process that the niche retailer sells through. Works Cited Competition Commission (2000) Supermarkets: A report on the supply of groceries from multiple stores in the United Kingdom, retrieved from http://www.competition-commission.org.uk/rep_pub/reports/2000/446super.htm Wrigley, N and M S Lowe, (2002) Reading Retail: A Geographical Perspective on Retailing and Consumption Spaces, New York: Arnold: London and Oxford University Press Burt, S L and L Sparks (2003) Power and Competition in the UK grocery market, British Journal of Management, 14(3), p 237-254 Fearne, A and D Hughes (1998) Success Factors in the Fresh Produce Supply Chain: Some Examples from the UK, 1998, London: Wye College BBC News (2006) Supermarket competition concerns, March 9 http://news.bbc.co.uk/1/hi/business/4785544.stm Elms Farms Research (2006), Organic Columbian Blacktail Eggs: the Stonegate/Waitrose supply chain, May http://www.efrc.com/manage/authincludes/article_uploads/EGGS.pdf Hawkes, Steve (2008) Put simply, Waitrose dishes up competition for M&S, The Times, October 2, http://business.timesonline.co.uk/tol/business/industry_sectors/retailing/article4863623.ece Wallop, Harry and Richard Fletcher (2009) Ocado undercuts Waitrose, starting an online supermarket price war, Telegraph, April 10, http://www.telegraph.co.uk/foodanddrink/foodanddrinknews/5136317/Ocado-undercuts-Waitrose-starting-an-online-supermarket-price-war.html Klasnja-Montenegro, Aleksandra (2005), eCommerce Application Development, Novi Sad Business School, http://ecenter.fov.uni-mb.si/merkurday2005/Papers/Aleksandra_Klasnja.pdf Read More