Reference no: EM133320216

Case Study: Selling Food Online

Red-Kitchen.com is a new type of online grocer that markets, sells, and distributes groceries, as well as precooked and packed meals, to customers around the Midwest. Red-Kitchen.com still publishes a high-quality catalog, which is mailed to new and returning clients who choose to place their orders by mail or by calling a toll-free number.

Since its debut, Red-customer Kitchen.com's base has primarily consisted of young, busy professionals, college students, and outdoor campers. Its customer base has grown to include some elderly persons as well as overseas customers in Canada. Despite the fact that the grocery/food market is very competitive and not particularly profitable, the online company has just begun to pick up momentum following a rough patch in the early 2000s. It is seen as an enticing alternative for folks who are "simply too busy" to shop at food stores or supermarkets. Furthermore, aged and physically disabled people who are unable to drive to a grocery shop appear to like the convenience of obtaining food online.

The primary advantage of online grocery shopping is that clients may explore virtual shopping aisles 24 hours a day, seven days a week without leaving their homes. They can also get immediate solutions to frequent ordering questions from an online assistant or a chat room.

E-logistics Challenges

Several pioneering online grocers, including Webvan, Streamline, Homegrocer, and Shoplink, failed to survive after investing hundreds of millions of dollars in developing their business model and infrastructure (e.g., warehouses). One of the primary reasons for their failure is a lack of awareness of the complexities of e-logistics. Most online grocery stores strive to deliver most things the same day they are ordered, often in as little as one hour. Many online grocers are required to adopt an expedited shipping program and create larger warehouses with more sophisticated software that permits "rapid-fire" order fulfillment and real-time inventory management in order to maintain the same-day or one-day delivery pledge. Webvan, for example, once spent a stunning one billion dollars to develop a variety of cutting-edge warehouse facilities around its intended market locations, only to run out of money before breaking even. Amazon.com, the e-commerce behemoth and parent company of the online grocer AmazonFresh, has also invested over $13.9 billion since 2010 in the construction of 50 new state-of-the-art warehouses to aid accelerate delivery from its expanded storage facilities.

Moving in the opposite way, Red-Kitchen.com is considering shrinking its warehouse network and outsourcing last-mile delivery services to contract shoppers who can drive their own cars to clients. Red-Kitchen.com previously experimented with the idea of allowing its customers to pick up their ordered foods at a predefined brick-and-mortar store that had a profit-sharing arrangement with Red-Kitchen.com. However, this self-service concept was not well embraced by some customers who disliked the trouble of going to the grocery shop. Red-Kitchen.com has decided to push the envelope on delivery alternatives as a better alternative to further increase online purchasing convenience. It is now testing the usage of "collection lockers," which allow customers to retrieve their packages outside of partnering grocery shops using a unique pickup code, eliminating the need for them to visit the store to pick up their "click-and-collect" orders before the store closes. Collection points in convenience stores, business parks, universities, mass transit stations, and park-and-ride lots are all being considered.

Red-ultimate Kitchen.com's goal is to be the market leader in terms of brand awareness, product range, product quality, and post-sale customer care. According to a recent customer survey, nearly 40% of its clients favor a high-profile, well-known brand over others. The organization recognizes that any managerial errors and the resulting damage to the company's reputation are unacceptable. As a result, it is willing to accept short-term losses in exchange for a better word-of-mouth reputation, a larger market share, and long-term profitability. Orders are received, packed, and dispatched in less than two hours, and processes for returning undesirable products such as dented cans, spoilt milk, and expired breads are "risk free" and "consumer friendly" at Red-Kitchen.com. Although https://Red-Kitchen.com is successful in facilitating product returns with little or no inconvenience to customers, this practice is becoming more expensive and is causing senior management anxiety. Nearly 10% of goods sold online were returned for refunds or product exchanges, putting a strain on Red-operating https://Kitchen.com's expenses and already-thin profit margin. Red-Kitchen.com does not manufacture or distribute any of the food/grocery products that it sells and distributes. To address the needs of its mostly perishable and seasonal product lines, it instead partners with local farmers and food manufacturers in the Midwest. Express carriers deliver container loads of labeled and pre-tagged food/grocery items to the company's main distribution hub in Chicago, Illinois.

Technology as the Selling Point

Technology continues to be an important component of the online grocery sector, both in terms of retailer-customer interactions and back-end retail capabilities. To improve its sales volume and customer base, Red-Kitchen.com begins experimenting with cutting-edge customer interface technology. It employs an intuitive, interactive online experience that makes use of the most recent interface technology, allowing clients to upload images of grocery/food products on virtual dinner tables and examine various recipes for those products without having to visit a shop. In addition to this user interaction technology, Red-Kitchen.com is thinking about implementing new technology like the Kiva System to improve its order-fulfillment capabilities by automating and optimizing warehousing operations. With technology being so important to online grocery business success, Red-Kitchen.com management see themselves as being in the "logistics/technology industry," as the company's income is dependent on e-logistics efficiency, early shipping notification, and shipment-tracking services. They believe the company's e-logistics capabilities are crucial to its stellar reputation in the online grocery market. Consumer tastes (e.g., healthier, low-calorie, GMO-free items) and preferences (e.g., two-hour delivery window) for the company's products, however, are a source of nagging anxiety for those supply chain managers. As a result, the ability to foresee changing customer behavior and then respond rapidly to changing client needs distinguishes market leaders from the rest. Furthermore, the company's ability to embrace cutting-edge technologies linked with e-fulfillment and logistical operations may provide it with a significant competitive advantage over its competitors.

Questions:

1. Do you agree with Red-strategic Kitchen.com's decision to outsource all of its distribution operations? (Do you believe the company should consider creating its own brand? Moreover, why?)

2. Do you believe Red-Kitchen.com might benefit from outsourcing its reverse logistics operations? Moreover, why?

3. What is the most suitable return policy for Red-Kitchen.com?

4. What do you believe Red-key Kitchen.com's skill will be?

5. What hidden dangers do last-mile delivery services present? (Be as particular as you can.)

6. What distinguishes the present business model of Red-Kitchen.com from previous catalog businesses, particularly?

7. What would you propose Red-Kitchen.com do to capitalize on Canada's expanding market?

8. Do you believe Red-Kitchen.com should continue to concentrate on online food and grocery sales? How else should the company increase its product line? (What type of product or service must it add to its portfolio?)

9. How does Red-Kitchen.com, from a supply chain perspective, safeguard its business against the deluge of competition offerings from spinoffs of e-commerce giants like AmazonFresh and mass merchants like Walmart.com?

10. Can you justify increased capital expenditures for the Kiva System, which uses robots to sort and pack ordered items?