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Products and services

Questions:

1.Is the Grocery Gateway business model sustainable? How does it compare to the approaches used by other Companies in this Industry, such as Tesco?

2.How much money is at Stake? How about when sales reach 5,000 deliveries per day?

3.What is the capacity of Grocery Gateway’s delivery operations? How many trucks will it need to handle 5,000 orders per day?

4.What information might be useful to collect over the next few days as part of your analysis?

Grocery Gateway was founded in 1997 and Longo Brothers Fruit Market Inc. operates it. This company is the pioneer in this online shopping of grocery business and a market leader. It offers 7500 grocery items as of now in its website including dry goods health and beauty products, frozen foods and wine and beer, fresh meats produce and organic products (Grocerygateway.com, 2017).

Grocery Gateway’s fleet of delivery vehicles has 15000 active customers and 125,000 registered customer. It takes 90 minutes delivery windows ordering in the time, from 6:30 am to 10:30 pm. Their strong point of sale is the website GroceryGateway.com. Orders can be changed at 14 hours prior to delivery.

The products are priced competitively and customers are expected to order at least 60$ and pay eight$ as a delivery fee. On a peak season, the company would get 1500 orders and there average value would be $135(Grocerygateway.com, 2017)

The main objective of the company is aimed at providing low cost and high service based on excellent execution of service. It has secured an investment of 103 million dollars form venturing and private sector financing (Bowersox, Closs and Cooper 2012).

Grocery Gateway was built on efficient online presence of their business such as demo of online shopping, getting started tutorials and email customer support, which attracted the customers to experience at least once of their product (Osterwalder 2012). Grocery Gateways website is fully loaded with electronic commerce functionality (Osterwalder and Pigneur 2012). The consumers are allowed to find grocery items and see picture and description of products and their prices, select cart (known as shopping basket) and check out the items for delivery (Bowersox, Closs and Cooper 2012). Website and applications are tightly integrated with the functions (Fleet 2012). The Descartes’s system software has taken the whole Enterprise resource Planning software to a new level of functionality (McDermott and Payvision 2015).

This supply chain business is all about the flexibility and ease of use programs. The interface must be usable to all party handling the software. Descartes’s provide combination of high valued routing, planning, tracking and dispatching functionality (Brock 2012). The outsourced routing service is also provided to the company by the routing consulting section. The static and dynamic route programs are updated each day and taken into account the favourable geographic zones, time windows and physical constraints they gives the sufficient  output. The interface is user friendly and the drivers do not have to be trained by customer response teams.

Business model and operations

Descartes’s visibility routing solution is with real time visibility and delivery activities, which are adjusted accordingly achieves the bottom line for the company (Johnson, Christensen and Kagermann 2012). With GPS enables mobile phones the drivers are tracked and automatically updated of planned routes. GPS pings are also sent from the phone and make them aware of their next location, speed and direction. With statistics from Descartes reports, Grocery Gateway is also able to provide feedback during regular driver meetings, including highlighting high-performing individuals.

The structure template of the firm that includes certain points like

  • key resources,
  • key activities,
  • Partners that includes suppliers and intermediaries (Osterwalder and Pigneur 2012).,
  • customer relationship,
  • channels,
  • customer segments,
  • cost and revenue structure,
  • value proposition

are the components of business model of a logistic company. The key resources of Grocery Gateway is the products they sources from grocery market and their capital invested, website and digital platforms, Information Technology infrastructure, Warehouses and human capital as employees and supporting stuff (Bowersox, Closs and Cooper 2012). The suppliers are local vendors that are associated with the company is key bargains of the company(Johnson, Christensen and Kagermann 2012).. The key activities include the everyday activities like getting online orders and carry through the orders collecting payment from buyers (Osterwalder 2012). Most of the activity is carried through the OPS and interface of the software developed by Descartes. The customer feedback suggests that the consumers are satisfied with service of Grocery Gateway (Osterwalder and Pigneur 2012).. In addition, the recent investments and expansion have caught eyes of many new customers as well as new investors (Jonsson 2012). The value proposition model of Grocery Gateway has two basic components (Schaltegger, Lüdeke-Freund and Hansen 2012). Those are competitive pricing of their products offered and time as well as direct delivery efficiency through smooth execution of their process.  This business model analysis of Grocery Gateway suggests the internal operations are more than satisfactory and can sustain through the modern application oriented era (Thach Olsen and Lease 2014). Although building route density along with company’s existing business routes with cost effectiveness is the key to success for Grocery Gateway and maintaining long-term sustainability (Schneid and Spieth 2013). The smart move service from Canada postal also praised their outreach program by polybagged ousterts and promotional strategy (Christopher 2016). All the three economic factors can be overcame by the mentioned company, the consumer economy, survival economy and the emerging economy (Bates et al. 2016). The pillars of sustainability of business models are redefining and reporting purpose environmental, financial and social outcome of business, stakeholders view of the firm and nature of sustainability, reinvesting and retaining the capitals (Høgevold and Svensson 2012).

Competition in the market

Business model of Grocery gateway has four main points    

  • Broken case picking
  • Direct delivery
  • Low cost position
  • Time efficient

Online grocery shopping scenario in Canada is to grow to sales of $3.6 billion per year by 2019, according to estimates from Forrester Research. Poologasingham, the market, currently is estimated at less than $2 billion. Canadian shoppers who say they buy groceries online spend just 4 per cent of their food budgets online, with the rest spent on goods bought in grocery stores (Islam et al. 2013). Toronto-based Grocery Gateway has been delivering to people’s homes since 1999 rather than having online orders ready for pickup at grocery stores, but it remains a niche business(Cooper and Ellram 2015).. That could be changing as Amazon increases its market share of packaged groceries in Canada, which it introduced in 2013. Online grocery shopping is not as fully developed in Canada as in other markets such as the U.K., where as many as half (48%) of consumers are online grocery shoppers – and 11% do all of their grocery shopping online. According to a November 2015 report from Mintel, only 9% of 1,728 Canadian internet users said they had shopped online for groceries in the previous six months – well behind categories such as clothing or footwear (43%), electronics or appliances (39%) or books/e-books (37%) (Boyer, Tomas and Frohlich  2012).


The Grocery Gateway was born when the online boom started and when others where developing their business in the rise of this industry, Longo Brother’ have not only some years of experience but also the capital investments needed for that. The main competitors of Grocery Gateway are AMAZON Fresh, Sky-rise, Target and Wal-Mart the retailers (Langston, Clarke and Clarke 2015). This entire retailer is not directly in competition with Grocery Gateway as Wal-Mart is not active on online grocery shopping and Amazon is not making profit in the area, sky-rise presence is in Vancouver. Target does not stock vegetables.

  • While comparing with the business model of Tesco one can see that Tesco is focused on the high valued brand and the company therefore develops its own brands like Tesco Fines and F & F Clothing’s (Schaltegger, Lüdeke-Freund and Hansen 2012). Thus it can be seen that the company focuses on quality products and wants its customer base to be from the premium sectors.
  • Moreover, Tesco is more focused on international level market where as Grocery Gateway is focused on the business traffic of greater Toronto and mainly Canada. Tesco has opened their franchise in foreign markets like Middle East and Saudi Arabia. This foreign market of Tesco is on their high valued brand of F &S.
  • Tesco’s employee number are big than Grocery Gateway. Tesco’s employee base reaches 20,000 in the last two years. This number is certainly higher than the Grocery Gateway’s employee base.
  • Tesco is mainly customer focused and aims to enrich their shopping experience (Wrigley 2015). Grocery Gateway’s focus is logistics execution and providing its customer valued product on competitive pricing(Thach Olsen and Lease 2014).
  • The value proposition of Tesco is their wide variety of products and 7/24 shopping and on the go product delivery (Boyer, Tomas and Frohlich 2012). Personal shopping experience for cardholders. Both of the presence of physical store and online stores are also a value addition to Tesco’s as compared to its competitors (Langston, Clarke and Clarke 2015). Whereas, Grocery Gateway can only be accessed through their website and applications on android and Apple (Lee, Lee and Larsen 2012).
  • Tesco have a mixed business model as their retail stores and online presence is equally active whereas Grocery Gateway is strictly in online business (Cooper and Ellram 2015).

2.Approximately 125,000 registered customers of Grocery Gateway ordered about 7818 orders per day having 135$ of value according to exhibit 2 in case study. Therefore average of 7818/7 = 1116.85 orders are taken per day. Then the revenue comes to 135*1116.85 = 150,775.714 dollars a days.

If the orders numbers are to be escalated to 5000 orders per day it must gain 135*5000 = $ 675,000 revenue per day.

One stop gains about 135$ therefore, as per company schedule the driver makes 2.7 stops per hour comes to 2.7*135 = 364.5 $ an hour, which is planned to escalate to four stops per hour. Then per hour revenue becomes 4*135 = 540$ an hour.

Revenue and variable cost analysis

The cost of drivers and vehicles comes to 30$ per hour. The driver gets 6.5 hours for per day shift. This comes to 6.5*2.7 = 17.55 orders per day.

For delivering 1116 (approx) orders per day the number of shift is 1116/17 = 65 shifts per day. Therefore, the total variable cost of delivery comes to 8*65*30 = 15600 $.(drivers works for 8 hours a day, 6.5 hours for delivery and 90 minutes for delivery related work)

In addition, the new approach includes 4 stops an hour. That is 6.5*4 = 26 orders could be delivered on 4 SPHOA program. Therefore, the variable cost of delivering 1116 orders per day is 1116/26 = 43 shifts per day, 8*43*30 = 10,320 $

This concludes that if the number of stops is increased the variable cost becomes low. The variable cost saving for 4 SPHOA is $(15600-10320) = $5280


For delivering 5000 orders per day, the number of shifts needed 5000/26 = 192 shifts (approximately). 192 shifts in 4 SPHOA program variable cost around 8*192*30 = 46,080 $.

100 drivers carry 1116 orders (approximately, if all are available at the same time). 1116/100 = 11.16 orders are carried by per drivers per day in 43 shifts (if they makes 4 stops an hour). Therefore, 5000/11 = 454 drivers are needed (to fulfil a week’ orders). The variable cost per hour is $30. The number of drivers needed have escalated from 100 to 454 and the truck number needs to be escalated at the same ratio. (Given the 4 SPHOA program)

3.Grocery Gateway is relocated on 2001 in Mississauga, a facility in towns view and there they have a 6225 square metre customer fulfilment centre. Their business model is divided in two main category. One is broken case picking and the other is direct delivery. They have optimize their facility of broken case for pick per stock keeping unit (sku) profile and the ratio is 1:1.It is the profile of ecommerce orders. Moreover, to addition to the capacity they are investing 15 million dollars in 26000 square metres. This will increase their throughput, cost position and capability. The three by three axis of A, B, C movers on one axis and three temperature zones (ambient , cooler and freezer) are designed at the best and used in greater technology of integration (Langston, Clarke and Clarke 2015).

 Grocery Gateway delivers 1500 orders on average and does this by 100 drivers and 55 trucks. Therefore, 1500:55 is the ratio, which equals 5000:183 trucks. Then the number of drivers comes to 1500 orders are taken by 100 drivers and 5000 orders will be taken by 333 drivers (approximately).

For the peak season as the exhibit suggests for all area coverage a week’s number of orders are 7818 therefore the number of trucks needed is 283 (calculated in the ratio above-mentioned 1500:55). 

Therefore, from the above statements and calculations it can conclude that the capacity of the grocery gateway needs to be increased in the ratio given (Thach Olsen and Lease 2014). For 4 SPHOA program the efficiency of the capacity is optimized. The said plan needs to be executed with appointing at least 333 drivers in han


4.The order processing system of Grocery Gateway is known to operate by Descartes software and the web orders are downloaded from Resources in motion system (RIMMS) (Burt 2014). Moreover, Warehouse Management System (WMS) is also utilised (Chesbrough and Rosenbloom 2015). It has dynamic route optimizers and the algorithms provide delivery schedules. He information that they must focus on are the

  1. Time per customer
  2. Time to park in different area, based on more frequent delivery area
  3. Time to unload and get to the door
  4. Time for unloading for customer
  5. Time to get payment
  6. Time to return to vehicle
  7. Speed in residential area including starting and stopping
  8. Delivery windows total time
  9. Drive time
  10. Time of the day
  11. Road type
  12. Other factors like speed of driving of the delivery boy

The customized software controlled the movement of the totes and skus are prepared accordingly. For the new plan to be effective it should be kept in mind that 4 SPHOA program is totally dependent upon the routes of the delivery plan. The 30 minutes reduction in delivery windows are known to be the focus point of Dominique, the vice president of Industrial engineering and operation system of Grocery Gateway. The two major points to consider are

The main point is to keep the trucks on the road for longer hours (Chesbrough and Rosenbloom 2015). This would need extending driving shifts and replenish the truck with high level of service and keeping in mind the Grocery Gateway’s customer satisfaction (Fergusson 2012).

Upgrading the software by approaching Descartes solutions technology. This provides RIMMS route optimisation service. Route profitability is must for this logistics business with the new plan in motion.

References

Bates, D.J., Hauenstein, J.D., Niemerg, M.E. and Sottile, F., 2016. Software for the Gale transform of fewnomial systems and a Descartes rule for fewnomials. Numerical Algorithms, 73(1), pp.281-304.

Bowersox, D.J., Closs, D.J. and Cooper, M.B., 2012. Supply chain logistics management (Vol. 2). New York, NY: McGraw-Hill.

Boyer, K.K., Tomas Hult, G. and Frohlich, M., 2012. An exploratory analysis of extended grocery supply chain operations and home delivery. Integrated Manufacturing Systems, 14(8), pp.652-663.

Brock, K., 2012. A Strategic Analysis of Canada Post's Parcel Ecommerce Growth Strategy.

Burt, S.,2014. Retailer brands in British grocery retailing: A review. University of Stirling, Institute for Retail Studies.

Chesbrough, H. and Rosenbloom, R.S., 2015. The role of the business model in capturing value from innovation: evidence from Xerox Corporation's technology spin?off companies. Industrial and corporate change, 11(3), pp.529-555.

Christopher, M., 2016. Logistics & supply chain management. Pearson UK.

Cooper, M.C. and Ellram, L.M.,2015. Characteristics of supply chain management and the implications for purchasing and logistics strategy. The international journal of logistics management, 4(2), pp.13-24.

Cooper, M.C., Lambert, D.M. and Pagh, J.D.,2015. Supply chain management: more than a new name for logistics. The international journal of logistics management, 8(1), pp.1-14.

Fergusson, O., 2012. Online Groceries Beginn to Ripen as Market Blossoms. Computer Dealer News, 7(2000), pp.32-33.

Fleet, G.J., 2012. EVIDENCE FOR STALLED ICT ADOPTION AND THE FACILITATOR ECOMMERCE ADOPTION MODEL IN SMEs. International Journal of the Academic Business World, 6(2).

Grocerygateway.com. (2017). Online Shopping & Delivery in Toronto - Grocery Gateway. [online] Available at: https://www.grocerygateway.com/store/ [Accessed 30 Jul. 2017].

Høgevold, N.M. and Svensson, G., 2012. A business sustainability model: a European case study. Journal of Business & Industrial Marketing, 27(2), pp.142-151.

Islam, D.M.Z., Meier, J.F., Aditjandra, P.T., Zunder, T.H. and Pace, G., 2013. Logistics and supply chain management. Research in Transportation Economics, 41(1), pp.3-16.

Johnson, M.W., Christensen, C.M. and Kagermann, H., 2012. Reinventing your business model. Harvard business review, 86(12), pp.57-68.

Jonsson, P., 2012. Logistics and supply chain management. New York.

Langston, P., Clarke, G.P. and Clarke, D.B., 2015. Retail saturation, retail location, and retail competition: an analysis of British grocery retailing. Environment and Planning A, 29(1), pp.77-104.

Lee, Y., Lee, Z. and Larsen, K.R., 2012. Coping with Internet channel conflict. Communications of the ACM, 46(7), pp.137-142.

McDermott, K. and Payvision, B.V., 2015. Key Business Drivers and Opportunities in Cross-Border Ecommerce. Payvision BV.

Osterwalder, A. and Pigneur, Y., 2012. Business model generation: a handbook for visionaries, game changers, and challengers. John Wiley & Sons.

Osterwalder, A., 2012. The business model ontology: A proposition in a design science approach.

Schaltegger, S., Lüdeke-Freund, F. and Hansen, E.G., 2012. Business cases for sustainability: the role of business model innovation for corporate sustainability. International Journal of Innovation and Sustainable Development, 6(2), pp.95-119.

Schneider, S. and Spieth, P., 2013. Business model innovation: Towards an integrated future research agenda. International Journal of Innovation Management, 17(01), p.1340001.

Thach, L., Olsen, J. and Lease, T., 2014. Selling Wine Online: Which Winery Ecommerce Practices Promote Highest Sales?.

Week, B., 2012. Knowledge management and new organization forms: A framework for business model innovation. Knowledge management and virtual organizations, 2(1), pp.13-27.

Wrigley, N., 2015. The lure of the USA: further reflections on the internationalisation of British grocery retailing capital. Environment and Planning A, 21(3), pp.283-288.

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