Grocery at the Crossroad: Creating Virtual Space for Real Groceries Martin BARNETT Lecturer School of Management Information Systems Edith Cowan University Perth WA 6018 Australia Tel: +61 8 9273 E-mail [email protected] Janice BURN Professor School of Management Information Systems Edith Cowan University Perth WA 6018 Australia Tel: +61 8 9273 8717 E-mail [email protected] ❒ Abstract This paper proposes models for retailing using an electronic market environment. The authors advance a set of models of virtuality to describe an electronic market consistent with popularly used definitions. These are related to electronic grocery retailing to describe avenues to efficient expansion. Virtual forms that may be adopted are constrained both by pre- defined communication links and the extent to which these can be substituted by virtual ones and also by the intensity of virtual links which define the virtual form adopted. It is argued that seven models suffice to provide and describe a comprehensive dynamic framework of change. It is suggested that for strategic advantage e-groceries must align management and communication strategies in accordance with the business model adopted but further that they need to develop a process of continual change management to reflect continuous evolution of the models in an e- market environment. Key-words :Virtual Organisations, Organisational Change, Global Retailing, e-Grocery, e-Business. Creating Virtual Space for Real Groceries Martin BARNETT et Janice BURN number of large grocery retailers, each of which operates Introduction a large number of stores (on average the large grocers Inexpensive advances in computer-enabled operate 113 stores each, compared to an average of 1.3 communication have provoked a varied usage of the term stores per retailer for the food sector as a whole), genera- ‘virtual’ as applied to organisations. One definition ting a large per-store turnover. The top five large grocery suggests that organisations are virtual only when retailers account for 48 per cent of all sales (London cooperating to produce deliverables across different Economics, 1997). locations, at differing work cycles, and across cultures (Gray and Igbaria, 1996; Palmer and Speier, 1998). Another suggests that the single common theme is In comparison, clothing retailers represent 7 per cent of temporality. Virtual organisations centre on continual total UK retail turnover. There are some multiples in this restructuring to capture the value of a short term market sector, although nowhere near as many as in food opportunity and are then dissolved to make way for retailing, with an average of 1.9 stores operated by each restructuring to a new virtual entity. (Byrne, 1993; Katzy, retailer. Electrical and music goods retailers make only 5 1998). Yet others suggest that we define virtual per cent of all UK retail sales. organisations by the intensity, symmetricality, reciprocity and multiplexity of the links in their networks (Powell, The emergence of larger retail operators has enabled the 1990; Grabowski and Roberts, 1996). Whatever the use of more efficient methods of distribution. Over time, definition, there is a consensus that different modes of wholesalers have more or less disappeared from many of virtual being are appropriate responses to inter and intra- the retail markets, with large retailers dealing directly organisational transactions (Hoffman et al,1995; Gray with manufacturers. This trend has probably been greatest and Igbaria, 1996; Goldman et al, 1995) and in the grocery retail market; between 1982 and 1992, consequently, different organisational structures are retail turnover increased by 125 per cent whilst turnover appropriate responses to different situations. (Palmer and from delivered wholesale trade increased by only 59 per Speier, 1998; Davidow and Malone). cent. At the same time the method of delivery has changed enormously as Different situations may be typified by different market retailers have become more efficient. Before the products. Whiteley (1999) makes an a priori division emergence of multiple retailers, most deliveries to between "Hot Cakes" and "Dead Ducks". He argues that retailers were made by manufacturers or wholesalers. internet business channels only work for some trades. Such deliveries were of an assortment of products to Delivery problems, uncertainty factors and costs will individual retail outlets. Nowadays, manufacturers tend to prevent items such as groceries, clothing and consumer deliver large amounts of a particular product in each durables - the Dead Ducks - succeeding in an e-market. delivery to a retailer’s own centralised warehouse. The Hot Cakes are items such as software, intangibles, books retailer has, in effect, internalized the wholesaling and and CDs, and specialist items. Whiteley asserts that transportation function into its own activities. The difficult deliveries, costs and delay, coupled with the advantages of centralised warehousing include: reduced (asserted) inability to charge less, inhibit the development stock levels; reduced delivery visits per store; reduction of e-business in the majority of physical goods. He argues of necessary storage space in stores themselves; fewer that for these types of goods there will be "large operators incidents of running out of stocks and empty shelves in who run a marginal e-commerce operation on the back of the outlet; and lower shrinkage. their conventional facilities. However for these types of goods most shoppers will want to visit a conventional store and see/feel the goods, possibly stop off for coffee The increasing quantity of data that can now be collected and then take their purchases home, real time, in a plastic and collated by retailers has improved their ability to bag" (p. 20). Why then is the so-called Dead Duck of the judge how consumer preferences change over time. As a retail grocery market worthy of study? method of exploiting this new information advantage, many grocery and other retailers have developed stronger relationships with suppliers and have become involved in Retailing and e-grocery markets product development (Hogarth-Scott and Parkinson, 1994). The retail grocery trade in developed countries accounts for between 30 – 50% of all retail spending on physical products, depending upon income levels and definitions It has been suggested that Interactive Home Shopping (Wileman and Jary, 1997). As each person in a cash- (IAHS) might threaten the established supermarket pre- based economy buys food, this puts retail grocers in a sence by disintermediating the bricks and mortar real market class of their own. This has given rise to estate and associated management capital. Supermarkets sophisticated networks of supermarket chains expanding are currently testing the potential for IAHS to alter their by virtue of their advantages of economy of scale, buying methods of dealing with customer requests. Trials are power, brand marketing and cross-marketing with loyalty under way on at least seventy Web sites in over 17 coun- and group promotion packages. tries at present (Bos, 1999), but what is not clear is the management strategies behind the deployment of resour- Food retailers are by far the largest retailing group in the ces in this way. It is likely that virtual forms of organisa- UK accounting for almost 38 per cent of UK retail sales, tion will arise to extend or replace existing business mo- whilst the large grocery retailers alone account for 30 per dels in the grocery trade. To understand therefore the cent of all UK retail sales. There are a relatively small stages of growth and management of organisational Creating Virtual Space for Real Groceries Martin BARNETT et Janice BURN change it is helpful to identify useful models for this in- dustry. Seven virtual models, derived from empirical study of more than sixty e-grocery operations, are proposed. Each of these requires different management and communica- tion processes to maximise and maintain strategic advan- tage but also to embrace dynamic change. The paper dis- The virtual face model commends itself, especially to cusses the implications within the context of each model small companies, as a starting point. Vince Belladonna, and the e-grocery business. The authors suggest that manager and co-owner of Dewsons, a franchised retail transformation from one model to another may be the grocery store in Perth Western Australia was the first efficient response to market stimuli, and that choice of person to make interactive home shopping a reality on the some forms may preclude the efficient transformation continent, purely as an opportunistic extension of existing into others. It is not suggested that there is a correct or business. His store had always provided a home delivery evolutionary direction of change, rather that there are service, mainly for the elderly who had difficulty in more predictably appropriate configurations in given shopping. It was a free service that spread by word of circumstances. mouth. As a result enquiries came in from younger cus- tomers who, for a variety of reasons, wanted to use the Models of Virtuality service. The cost of providing the service on a wide- This paper identifies seven different models as: virtual spread and regular basis was becoming prohibitive, so faces, co-alliances, star alliances, value alliances, market Belladonna looked for ways to recover this cost before he alliances, virtual brokers and virtual spaces. The value of was forced to drop the service altogether. The idea of a each of these forms lies in their being an appropriate res- Web based computer shopping system commended itself ponse to the communication and transaction needs within and Belladonna found a small local company willing to a given nexus of market forces and opportunities. design and provide the web site and online ordering sys- tem. The virtual face Put simply, virtual faces are the cyberspace incarnations The system viability was tested simply by asking custo- of an existing non-virtual organisation (often described as mers whether they would use an available web order and a “place” as opposed to “space” organisation).