Tesco Vs Webvan

1.0 Introduction

The grocery industry is a huge, fragmented and enormously competitive environment and there are currently several examples of grocery companies that are making effective use of the internet as a link with customers (Delaney-Klinger, 2003). In particular, Tesco currently have internet channels for selling groceries that are profitable (Hall, 2001; Koller, 2001).

During the late 1990’s many new companies were set up to utilise the perceived advantages from using the internet in business, however, with their rapid rise and fall they soon created a phenomenon known as the �dot.com’ era (Lovelock, 2001). Questions were then raised about the added value that the internet brought to business and how these technologies could be used competitively. Grocery companies chose to diversify their service by introducing online equivalents of conventional stores. Porter (2001, p.62) criticised numerous pioneers of Internet business for infringement of fundamental strategic principles:

“Gaining competitive advantage does not require a radically new approach to business; it requires building on the proven principles of effective strategy”

The most successful example of an internet business that built its strategy on a previous effective one is Tesco’s online service. However, some companies, such as Webvan fell into the category that Porter (2002) criticises and failed in the online grocery sector.

2.0 Tesco.com

The retail giant, Tesco has cornered 30 percent of the UK grocery market, a figure which is approximately double the collective share of nearest competitors Asda and Sainsbury’s. Overseas sales are growing even faster (Emerald, 2008). Tesco.com views internet ordering of groceries as “an additional sales channel” (Delaney-Klinger, 2003) recognising that this service will never surpass that of grocery store shopping. With this in mind, one of Tesco’s strategies was to market groceries online as a convenience and not as a lower cost option (Delaney-Klinger, 2003). Tesco’s research into the small online grocery markets enabled them to develop an appropriate strategy which allowed the organisation to operate within their means. By providing a �Bricks-and-clicks’ hybrid service Tesco’s used existing stores as storage where the online orders would be distributed with respect to consumers location; thus reducing their start up costs.

2.1 Sustainability

The sustainability of Tesco is evident through the way in which they add value by their “plan to target online shoppers via Clubcard, rather than just fishing in the pool of Internet users.” (Humby et al, 2003). Tesco’s Clubcard assists their online strategy as it collects data from each purchase; the data is then altered in store and online to reflect the product range felt important to the customers. Every so often the customers are mailed vouchers that are tailored based on previous purchases made. This also allows the retailer to gain a vast amount of information and knowledge of their customers. By doing so Tesco were able to maintain a sound knowledge of what their customers need and in turn led to the retailer being able to provide to those needs conveniently. To cite Porter’s (2001) quote previous he stated, competitive advantage �requires building on the proven principles of effective strategy’ which is what Tesco done. However, this sustainability can be challenged as analysts point out that such a basic loyalty scheme can be easily copied which would result in lower profits for all (Emerald, 2008).

3.0 Webvan

Webvan viewed online grocery shopping as a highly lucrative market where they envisaged the process as being stress free, convenient and cheaper for the consumer (Delaney-Klinger, 2003).

The strategy to redesign the �grocery industry infrastructure to make it more efficient’ (Knowledge @ Wharton, 2001) by offering delivery of groceries within a 30 minute window at a price which is highly competitive with that of store based grocers was a �misalignment between marketing and operations strategies’ (Delaney-Klinger, 2003). Their �clicks-and-clicks’ strategy included setting up state of the art warehouses where Webvan employees picked and distributed orders to consumers within a twentieth of the time of that of an average consumer.

“Webvan made huge bets on the internets ability to change shopper’s behaviour, Tesco made tiny ones.” (Knowledge @ Wharton, 2001 p.1).

It is believed that Webvan’s failure was due to the violation of several fundamental