A logistics perspective on the virtual marketplace

IfWebvanfailed in USA can mandi.com’s DTH F&V delivery succeed in Gurgaon?A Logistics Perspective for a Virtual Subji Mandi
An academic exploration by:
Anil Chopra
+91-98118-14559
www.agrisolutions.in

Breaking News - 25th January 2010
Dubbed AmazonTote
Comment 1 - Steven Lomele - Amazon's success with grocery delivery is about market timing, not about bringing an original idea to fruition. Hopefully, AmazonTote can avoid being the next Webvan 2.0 considering Webvan is "part of the Amazon.com"
Comment 2 - Steven Laurel - Proof we are in another dot com bubble. This has been done before and failed every time.

Lets start with a some HISTORY

Revolutions based on technological change CAN and HAVEoccurred in grocery retailing
Major shifts in food buying behavior have been a result of technological change
The companies that have recognized and adapted to these changes have prospered
Successful concepts have shown massive and rapid growth
The supermarket has already proved to be an irresistible proposition for most shoppers

Major shifts in food buying behavior have been a result of technological change

The companies that recognized and adapted to these changes have prospered

eGrocery
Lets now pick specific bits of HISTORY to build our case and illustrate the evolution. or Revolution or hELLUCINATION!

4 lessons that emerged
from the dot.com crash...

Lesson 1:
History shows that innovative business success depends on a solid technological infrastructure
.… this takes time.
Those who fail to learn from history are doomed to repeat it.

History Quiz: Who said it and when?
“You may go to an average store, spend valuable time and select from a limited stock at retail prices…or have our Big Store of World Wide Stocks come to you.”
a) Jeff Bezos - business plan of Amazon.com 1995.
b) Bill Gates - on retail plans for Microsoft 2000.
c) Vice President of Wal-Mart e-tailing 1998.
d) none of the above.

History Quiz: Who said it and when?
Answer: d) none of the above
Statement comes From Sears-Roebuck Catalog 1915
Catalog has been regarded by economists as a…
“radical transformation in the marketing and
distribution of consumer goods.”

Sales Growth History of Sears Roebuck
Richard Sears
begins to sell
watches to
railroad station
agents.
High Growth
First large
general Sears
catalog.
What happened here?
What happened here?

Tough to deliver goods prior to 1900

The King Road Drag
This 1905 Invention leveled and packed muddy roads. Made auto transportation possible.
Road before King Road Drag
King Road Drag in Action
Road after King Road Drag

D. Ward King
invents the “King
Road Drag”
Richard Sears
begins to sell
watches to
railroad station
agents.
High Growth
Sears installs
pick and ship
warehouse
(10x productivity
increase)
First large
general Sears
Catalog – 532 pages
Revenues - $750,000
Congress mandates
“Parcel Post” as long as you have good roads
So what was the greatest innovation the catalog?
or the King Road Drag?

Technological change happened in 3 phases:
Creation of infrastructure (Warehouse)
Arrival of enabling technologies (Drag / Parcel post)
Business growth built on the previous 2
“A lot of people jumped the Gun…
They tried to skip the first two phases.”

Question Time again:
Identify the key Technological Infrastructure for F&V eTailing?
Mandi.com
Sears
Stage of Development
Business Construct Catalog Sales Home Delivery
Products Durables Perishables
Creation of Infrastructure Roads ???
Enabling technologiesPick System ???
Postal Service

Lesson 2:
Because infrastructure changes slowly
old companies still hold power.
Even when WE Indians are most angry with mainstream traders and middlemen, WE buy 96% of our F&V from Traditional retail
(read pushcart or squatters or corner shops) not Organized Retail (read Safal, Reliance Retail or others)
Vital Statistics of F&V Trade in Delhi / NCR

Incumbent power comes from existing infrastructure.
Examples of incumbent power:
Commission Agents and Mandi system in India has created huge entry barriers for new entrants.
It has been estimated that it is 3 times as expensive to acquire a customer “on-line” as it is to acquire a customer with physical stores.
Over 90% of all supermarkets have data processing and customer service capabilities before going on-line.
In 1925 Sears opened retail stores by 1930 retail store sales had outpaced catalog sales.

D. Ward King
invents the “King
Road Drag”
Richard Sears
begins to sell
watches to
railroad station
agents.
Sears opens
first retail
stores
Congress mandates
“Parcel Post” as long
as you have good roads
First large
general Sears
catalog.
Sears installs
pick and ship
plant
(10x productivity
increase)

Lesson 3:
The parameter estimates in e-business plans
are so far off, even worst case sensitivity
analysis isn’t bad enough….
Incorrect estimates lead to adoption of
the unprofitable business models.
No need to dwell on this – you all know better than me, a subjiwallah

Lesson 4:
In many cases it is hard to sell the value
of improved information flow without the
accompanying product flow.
Internet has a tremendous potential to improve
information flow….No doubts, but what about seamless Supply Chain Management

Money Flow
Product Flow
Information Flow
Products
End Customer
Supply Chain
Supply Chain Management Concept

Lessons from the dot.com crash
Successful businesses built on new technology take time.
Incumbents may be more successful using technology.
Carefully consider the estimates in your business models.
Carefully evaluate the value attached to information flows.

Can we spot New Propositions?
Use technology to make old infrastructure more efficient.
Enhance existing products and services with internet technology.
Use technology to reduce costs of coordination within companies.
Use technology to reduce transaction costs between business partners.

What’s so special about F&V Supply chain?
FSC?
fFRESH
sIMPLE
cLOSER

F&V product flow has to address following specific issues – Mostly Global F&V Supply Chain issues but few are India specific
High price variability
High losses and shrinkage
Long order response time
Insufficient quality control throughout the chain including shortage of refrigerated transport and storage
A general lack of production planning and rigid or outdated production methods
Insufficient ability to fulfill product specifications
Lack of information flow into the whole chain
No value added from specific trade mark strategies
Lack of trust between stakeholders in the supply chain
Coordination difficulties between many small suppliers
Look – Above list don’t yet include any service requirement from a housewife’s perspective

Customers look beyond HOME DELIVERY – which is generally thought to be major USP of eTailing
Customers specific requirements for Perishables product flow includes:
high quality (read freshness),
Right size,
a broad assortment,
high availability,
Right packing,
food safety,
right delivery at right place at right time,
and last but not least, an acceptable price

Back to the original ????
Can mandi.com SURVIVE?
Can it meet customer and supply chain expectations while managing Growth and Profitability for its shareholders?
Does mandi.com have the INFRASTRUCTURE to support a supply chain that if not eliminate but minimize listed supply chain issues
Or it has to invent a different value and hitherto not known demand aggregation, inventory & delivery models

Cash Flow
Physical Distribution Flow
Information Flow
Supply Chain
Products
End Customer
(External + Internal Units)
Can improved information flow supports or replace or generate enough savings to meet requirements spelled out in last two slides?

What’s needed..
SEAMLESS INTEGRATION of internal / external entities of an enterprise through STREAMLINED information, physical distribution and cash management.

Seamless integration……
How?????
the swim, sink or float factor

Supply chain and Customer expectation has led to emergence of two major business model for eGrocery retailing
the intermediary model, where the e-Grocer offer consumers home delivery from local supermarkets
the channel model, where the e-Grocer creates a new channel that replaces the local supermarket with home-delivery from a distribution center

How these two models differ

Choosing a business model for Grocery retailing lessons since 2000
Until recently - eGrocery shops have offered extra value only by home deliveries.
But this is not enough if eGrocery want to reach the critical mass of consumers.
Critical mass of consumers is looking for cheaper prices as well as better service.
Furthermore, the word “service” does not mean only home deliveries
Customer service is still important, but low expenses have taken a more important role.
There are a lot more aspects of service than home delivery in the electronic grocery.
Customers require high quality, food safety, a broad assortment, high availability, right delivery place and time and an acceptable price.
Customers appreciate things such as delivery window, easy way of receiving, impeccable quality and wide product range.
So eGrocery shops have to reevaluate and reinvent their roles.

Winners and losers!!!
Two quick cases…

Why did Tesco.com become a success while Webvan failed?
Webvan tried to reinvent the whole infrastructure.
Build 26 warehouses costing USD 35 Mn each.
The warehouses served large areas with high order volume to cover costs. Also had to spend on brand building.
Fast expansion
Revolutionary customer (innovators and technolgy enthusiasts)
Free delivery
Tesco extend its supermarkets with online grocery orders.
They have brand, suppliers, advertising, a database of 10 Mn. Loyality Card members.
They use the store-picking model.
They can serve an area of 100,000 people and break even on small volumes.
Slow expansion of infrastructure
Obtain traditional customers (mainstream market)
Charge a delivery fee (covers cost of vans and drivers).

Can mandi.com win?

Given online grocers in World over are struggling, will mandi.com in Gurgaon ever turn a profit?
Yes – but it must focus on:
high-end markets,
limit delivery schedules
make partnerships with bricks-and-mortar grocers
or completely reinvents a yet untried new business model
Instead of maintaining expensive inventory and warehouses use someone else’s warehouse for its inventory.
Have low entry and customer acquisition costs
build customer base
Tesco uses local supermarkets to fill orders and not central warehouses.
The model that has been working is an existing popular grocery chain building it’s own online ordering system and uses it’s own stores as the warehouse. Opportunity for Safal and Food Bazar?

Given online grocers in World over are struggling, will mandifresh.co.in in Gurgaon ever turn a profit?
No – Studies have shown that:
people do not like going to the pushcarts / squatters,
but they also do not want someone else picking their tomatoes.
the mass-market home delivery model will not work because few people are home in the day when the people who deliver want to work
You should not try to use the Internet..to compete in an industry where the existing competitors are giants with highly efficient distribution systems.

thank you
Anil Chopra
cell. +91-98118-14559
email: anil.chopra@agrisolutions.in
MD – Competent AgriSolutions Pvt Ltd and founder VEGFRU
www.agrisolutions.in
www.vegfru.com
www.anilchopra.com

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A logistics perspective on the virtual marketplace

by anilchopra on Feb 02, 2011

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A logistics perspective on the virtual marketplace — Presentation Transcript