As we've been researching online grocery, this comment by Nick Sleep in 2007 on internet retailing comes to mind:
It seems to us that the basic building block of internet retailing, its skeletal structure, is far more robust, scalable and cheaper than the high street equivalent. In other words its power law is very high, and implies that businesses with the simplicity of operation as say, Amazon.com, have a shot at being far bigger, quicker and more profitable than their high street equivalents. - Nick Sleep, Nomad Investment Letters
Centralised fulfilment is a core advantage for pure-play internet retailers. Suppliers ship direct to centralised warehouses and then the retailer ships directly to customers rather than to retail stores. This eliminates the most expensive part of the supply chain.
Stores are also a complex operation that determine the quality of the customer experience. The staff’s behaviour, aesthetic design of the store, and available assortment creates a different experience for each customer. These variable factors are hard to manage consistently at scale.
The variables that define the online customer experience are largely fixed. The website UI/UX cost is fixed and the same experience for customers globally. The product range and delivery experience are determined by the scale and efficiency of the logistics infrastructure. As Sleep suggests, these fixed variables make the ‘skeletal structure’ of internet retail inherently more robust and scalable than traditional retailing.
But how does this translate when selling groceries online? Does a pure play grocery retailer have a chance to win as much share online as Amazon in non-food retail?
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