Building an Online Grocery Business: the Case of Asda.Com

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Building an Online Grocery Business: The Case of asda.com

Irene Yousept, University of Newcastle upon Tyne Business School, UK Feng Li, University of Newcastle upon Tyne Business School, UK

EXECUTIVE SUMMARY

This paper uses the case of ASDA.com, ASDA’s home-shopping arm, to demonstrate the challenges in building and developing an online grocery business in the UK. To set the stage, the initial implementation and learning from phone/catalogue home-shopping in ASDA is outlined to demonstrate why e-commerce was seen as most economically suitable to conduct a grocery home-shopping business. Then the paper illustrates the development stages and critical aspects of ASDA.com’s Web shop. Particularly, it delineates the operational aspects of B2C e-commerce in the grocery business: fulfillment center and fulfillment process. The case will also describe ASDA’s efforts in overcoming problems with their home-shopping fulfillment model and present important elements of ASDA.com’s virtual store and its operation. The paper concludes with the challenges that ASDA.com has been facing, their current status, and future prospects.

Keywords: B2C e-commerce; digital economy; distribution channels; e-business; e-commerce expansion; e-commerce implementation;e-commerce needs; e-commerce planning; e-commerce problems; e-grocery market; e-operation; e-retailing; e-tailing; electronic business; electronic retailing; electronic shopping; information economy; Internet commerce; Internet economy; online grocery shopping; online shopping; service industry; virtual shopping; Web shopping; Web site design; Web-based commerece

ORGANIZATION BACKGROUND

ASDA Stores Ltd. (http://www.asda.co.uk) was Britain’s second largest supermarket retailer, with a turnover of £13.2 billion (for fiscal year ending December 31, 2003). The company’s trading activities involved the operation of food, clothing, home, and leisure superstores throughout Great Britain, mainly targeted at the British working class family. With its superstore format, the company had been very strong in non-food offerings. In January 2004, ASDA had 255 stores and 24 depots around UK with 122,000 employees and was a subsidiary of US-based Wal-Mart Stores Incorporated (http:// www.walmart.com), the biggest retailer in the world.

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Wal-Mart Stores Inc., ASDA’s parent, was founded by Sam Walton in Bentonville, Arkansas, United States (US) in 1962. In the fiscal year ending January 31, 2004, the company was one of the biggest in the world, with a turnover of around $256.329 billion (£142.405 billion) under the lead of H. Lee Scott, Jr. the president and CEO. In total, Wal-Mart had nearly 5,000 stores and wholesale clubs across 10 countries and more than 1.3 million employees worldwide (which were referred to as the “associates” in Wal-Mart or “colleagues” in ASDA). The ASDA headquarters were based in Leeds. Leeds is the premier city in York- shire, one of the northern counties in the United Kingdom. The company was founded by a group of Yorkshire farmers in 1965 as Associated Dairies. Its first store opened in the same year, and since then, it has specialized in bulk selling at low prices. ASDA then expanded into the South of England in the 1970s and 1980s. The company was acquired in June 1999 by Wal-Mart Stores Inc. In 2004, ASDA’s management team was led by Tony Denuzio, CEO for ASDA, which reported to John Menzer, president and CEO of Wal-Mart’s international division. ASDA acquired and retained customers by providing a broad assortment of quality merchandise and services at low prices. Wal-Mart’s “Everyday Low Price” policy (EDLP) had gained ASDA the title of “British best value supermarket” for 7 successive years. In 2004, it offered around 25,000 lines of food and non-food. ASDA, as all other subsidiaries of Wal-Mart Stores Inc., was ruled by three basic beliefs: respect for individuals, service to customers, and striving for excellence. These rules were established by Sam Walton (1992). Walton also claimed that the success of building the company could be pinned down into 10 rules that were still true for the company in 2004. These rules were (for details of these rules, refer to http:// www.walmart.com): (1) Commit to your business. Believe in it more than anybody else; (2) Share your profits with all your associates, and treat them as partners; (3) Motivate your partners; (4) Communicate everything you possibly can to your partners; (5) Ap- preciate everything your associates do for the business; (6) Celebrate your successes; (7) Listen to everyone in your company; (8) Exceed your customers’ expectations; (9) Control your expenses better than your competition; and (10) Swim upstream. Go the other way.

IT at the Heart of Strategy

“People think we got big by putting big stores in small towns. Really, we got big by replacing inventory with information” (Walton as cited by Wal-mart, 1999, p. 9).

IT played a major role in the success of Wal-Mart. It believed that IT was a key facilitator in staying focused on customers: getting customers what they want, at the right place and the right time, and exceeding their expectations. The management of IT in ASDA was housed under the ISD (Information Services Division), led by Andy Haywood, who reported to Linda M. Dillman, Wal-Mart’s CIO (chief information of- ficer). Figure 1 describes ASDA’s ISD strategy. The acquisition of ASDA by Wal-Mart

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