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I N T E R N A T I O N A L

IMD-5-0615

v. 27.11.2003

Research Associate Rebecca

Chung prepared this case

under the supervision of

Professor Nirmalya Kumar as

a basis for class discussion

rather than to illustrate either

effective or ineffective handlingof a business situation.

Since its April 1998 launch, LeShop, the first virtualsupermarket in Switzerland, had established itself as the leadingonline grocery service in the country. It had managed to survivewhere many more famous and better-funded pure play onlinegrocers in the US like Streamline and Webvan had gonebankrupt.

LeShop had outperformed the online operations of all the majorsupermarkets in Switzerland. However, despite the impressive63% share of the online Swiss grocery market and anticipatednet sales of CHF 13 million in 2002 (refer to Exhibit 1), theoperations had not yet managed to break even.

Relative to other European countries, online grocery sales wereunderdeveloped in Switzerland by a factor of 18. Only 0.05% ofthe total grocery market was online (12 million) (refer to

Exhibit 2), compared to 0.88% in the United Kingdom (934million) and 0.76% in Paris (171 million). Only 35% of Swissadults were aware of the existence of online grocery services,

compared to 96% in the UK and 94% in Paris. An impatientChristian Wanner, CEO of LeShop, observed:

Unfortunately, unlike the UK or Paris markets where key traditional

players like Tesco and Carrefour heavily advertise their online service,

the dominant brick and mortar supermarkets in Switzerland like

Migros and Coop are not actively pushing online sales.Instead, we arefighting a lonely battle as pure play in trying to get the Swiss people

to change their habits and shop online for groceries. If the online

grocery market in Switzerland had just one-third of the development

of the UK or Paris, we would already be at breakeven.

LeShop faced several challenges in its fight for profitability.How to make a greater number of potential customers aware ofthe benefits of online shopping and encourage them to tryLeShop? How to increase retention and share of wallet ofexisting customers? And, finally, how to improve distributionefficiency and customer satisfaction?

Copyright 2003 by IMD - International Institute for Management

Development, Lausanne, Switzerland. Not to be used or reproduced without

written permission directly fromIMD.

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Industry and Company Background

Brick-and-mortar grocery stores in Switzerland had limited opening hours.Typically, they were only open from 8:00 to 19:00 from Monday through Fridayand from 9:00 to 17:00 on Saturday. Parking was often a problem. Stores weretypically small, having narrow aisles and carrying a limited assortment. Moreover,grocery clerks did not bag groceries for customers. According to Wanner, as anaverage family household spent between 150 and 200 hours a year doing groceryshopping--equivalent to one months work--there was a growing need for a hassle-free and convenient grocery shopping solution.

In response to this need, Alain Nicod (Chairman of the Board), Rmi WalbaumJesus Martin Garcia and Christian Wanner founded LeShop in 1997, when e-commerce was just beginning. LeShop was located in Chavannes-de-Bogis, close toGeneva. Nicod led the operation until mid-2000, when Wanner took over as CEO.The company employed 55 people (refer to Exhibit 3for organization chart).

In 1999, Bon Apptit Group, Switzerlands leading listed food trade companyoffering retailing, catering and logistics services, bought a 33.3% stake in LeShop.In 2001, it raised its shareholding to 54% to become the majority shareholder.This allowed LeShop to take advantage of the bulk purchasing power of the BonApptit Group. In February 2003, ShoppingNet Holding SA, owned by privateinvestors, took over shareholding of the Bon Apptit Group.

When www.LeShop.ch was launched (refer to Exhibit 4), it generated anoverwhelming response--more than 800 users logged on simultaneously and evencrashed the servers after less than two hours.

LeShop primarily targeted working women with young children who wanted tofree themselves from stressful and tedious household replenishment duties. By2002, LeShop served 16,000 regular customers (population in Switzerland was 7.2million). The average shopping basket size had increased to CHF 185 (vs. CHF 34in a regular supermarket), with a gross margin of 28%. Typically, the number oforders per day ranged from 300 to 400, with Mondays and Fridays being the peakdays with up to 700 orders.

LeShops key competitors were the online operations of the two leading brick-and-mortar grocery chains in Switzerland, Migros and Coop. Although LeShophad the highest market share, Migros-shop.ch had the highest national awareness(refer to Exhibit 1). This was probably because the latter benefited from the haloeffect of its mother brand, Migros, which had more than a 40% share of the Swissgrocery retail market.

The amount spent on increasing awareness of online grocery shopping wasrelatively low in Switzerland--about 4 million since 1998--and LeShop wasresponsible for more than half of this marketing investment. In contrast, in the UKand Paris, these figures were estimated at 35 million and 24 million respectively(refer to Exhibit 2).

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Product Assortment and Pricing

LeShop offered more than 5,500 food and non-food products ranging from freshfruits and vegetables, meat, dairy products, bread, branded food and beverages,organic items, exclusive gourmet products, wines and spirits, and tobacco tobeauty products, baby items, household goods and wellness products (refer to

Exhibit 5). Compared with the British and French, the Swiss population was usedto a much smaller assortment. Dominique Locher, Store Director, noted:

We see ourselves in a service industry. Our strategy is to establish a regular and trust-based

relationship with our customers through the basic food assortment, and to expand the

basket size and margin by pushing higher-value complementary categories such as wellness

products, toys and books.

LeShop had a very strong focus on fresh products such as meat, fruits andvegetables because these items were a critical driver of basket size and purchase

frequency. Among its 700 fresh products, LeShop even offered premium itemsthat other grocery chains did not stock, such as Swiss Prime meat which had abar code allowing it to be tracked online back to the farmer. However, RebeccaMeurer, Marketing Director, noted:

Fresh is a tough one. The change in purchasing habit is massive--instead of selecting fresh

food items from the shelves themselves, mothers are now delegating this important task to a

third party. You only have one chance to get it right, if you do not fulfill their high

expectations, they will never buy fresh from you again.

However, LeShop believed that fresh produce offered an opportunity to buildstrong relationships with customers because if these mothers were satisfied withthe products, they would trust LeShop more.

LeShop worked closely with leading manufacturers that were experts in categorymanagement, such as Procter & Gamble, Henkel, Bestfoods and Nestl, to makedecisions on product assortment, pricing and promotions. Given the richness ofLeShops customer information, they could jointly develop approaches that werequite different from those in traditional retailing--for example, personalizedpromotional campaigns. In addition, LeShop had to rely on branded manufacturersbecause its low volumes did not allow for an efficient private label offering.

Although low price was not the primary benefit of e-grocery, LeShop realized thatvalue was critical to customers. Locher indicated:

We systematically benchmark prices of Coop, Migros and drug stores. We charge the sameprices for our branded dry grocery articles and branded dairy foods, and a slight premium

for our higher quality fresh products. For destination categories, such as baby items, our

prices are lower than our competitors. For example, we offer Everyday Low Price on

diapers at a price significantly below that of Coop, knowing that pregnancy and birth are

typical entry points in e-grocery.

To offer customers lower prices, in 2002 the company introduced a Family Line--bigger-size packs--and a Value Line--100 products of secondary brands. Value Lineproducts were highly price sensitive, for example, pasta, laundry items and diapers,and were priced 20% to 30% below their primary brand substitutes.

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Website

As online grocery shoppers had to select and drop as many as 50 items into theirshopping basket with minimum time and hassle, the guiding principle forLeShops website design was absolute simplicity. The aim was to make onlinegrocery shopping fast and easy, even for Internet novices. For example, the sitestored the customers last shopping basket to allow him or her to check what hadbeen ordered and to make it easier to reorder. The site also allowed customers tostore different lists of products that they would purchase again. To speed up theprocess, there were no flashing banners or pop-up messages to distractcustomers from completing the transaction.

A user-friendly online catalogue was critical to fast and easy shopping, whichmeant that optimal categorization of products was particularly important. BecauseLeShops website was operated in three languages--English, French and German--additional efforts were required to develop and validate product categorization to

take into account the cultural differences. LeShop regularly videotaped consumersshopping at their PCs to identify how to make it easy for them to find what theywere looking for. Unlike physical stores, LeShop had the ability to experimentand increase product visibility and sales by having the same product appear indifferent categories.

To encourage its primary targets to visit the website, LeShop also offered aLeShops Extras corner with value-added information. For example, workingmothers could obtain ideas on how to hold a successful party for their kids,including invitations, games and recipes. LeShop also proposed a list of partymerchandise so that working mothers did not have to compile their own detailed listand search for the items individually in the online catalogue (refer toExhibit 6).

According to Wanner, Procter & Gamble benchmarked the websites of onlinegrocers worldwide and ranked LeShops website in the top three in terms ofcustomer usability. The company licensed its technology, which was developedin-house, and its know-how to Auchan, a leading French-based international retailgroup, to help the latter successfully implement the front-end technology inFrance (www.auchandirect.fr) and in Spain (www.alcampo.es).

The Fulfillment and Delivery Challenges

Order Fulfillment

Investing in Its Own Logistic Center

In its first few years of operation, LeShop used a logistics company for orderfulfillment. This was not the optimal solution, since putting together groceryorders was highly demanding for several reasons. First, fulfilling a grocery orderwas a process that involved picking single items, as opposed to entire cartons orpallets which could be machine loaded. Second, the warehouse had to have threetemperature zones, ranging from 18oC to +20oC. Third, fruits and vegetables,fragile beverage bottles and health-related products required careful handling.

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In 2001, LeShop opened its own 7,000 m2 logistics center (warehouse) inBremgarten, about 25 km southwest of Zurich, which was the first e-commercefulfillment center in Switzerland. LeShops management team had visited leadinglogistics centers in various industries throughout the world to observe bestpractices. The company integrated the resulting know-how into the new center toachieve better control over quality and cost reduction.

Construction of the logistics center, concept and software development, and staffrecruiting and training were completed in a record time of just four months at acost of CHF 2.6 million. The new center was not highly automated but had amodular design, which allowed it to be expanded at any time at low cost.

In the logistics center, products were organized according to storage requirements,picking sequence and shelf turnover. On the left side of the center, three refrigeratedsections took up a total space of 1,600 m2. The rest of the center was divided intodifferent packing zones for fast-moving items, slow-moving items and bulk items

(refer to Exhibits 7and8 for layout and interior). In each zone, more frequentlypicked items were placed at the front to reduce walking/picking time.

The logistics center employed 30 full-time employees, plus 10 part-timers to helpout if order volume was abnormally high. Typically, the center started operationsat 4:00, when it received fresh produce. LeShop required local suppliers to pre-package fresh products before sending them to the center. To ensure high quality,LeShop could reject as much as 20% of fresh merchandise at entry.

Between 5:00 and 11:00, packers fulfilled all the orders placed the day before.Immediately after 11:00, all the shipping boxes left the center and reachedcustomers the same evening. Employees then performed other tasks such as

replenishment and cleaning.

The Picking Process and Efficiency

When LeShop received an order on its website, the system routed the order to acomputer located in the logistics center. Employees printed the picking list andcustomer labels and put them, together with two grocery bags, in a 50-litershipping box (refer toExhibit 9for fulfillment process).

Picking combined both manual and automated processes and started in therefrigerated section. A packer picked all the items from that section according tothe customer order. The packer placed all perishable goods, together with coolpacks--frozen bottles of water--in insulated bags to ensure that they remainedcold and fresh for 24 hours. LeShop charged a deposit of CHF 5 per order for thebags and credited the customers account with the corresponding deposit when thebags were returned.

For the other packing zones, instead of assigning an order to one packer andhaving him or her walk through the aisles with the shopping trolley, the shippingbox was sent to the appropriate packing zones via a 700-meter conveyor beltsystem. Thus several packers, each at different aisles, simultaneously packeditems for the same order. Because the amount of walking each packer had to dowas reduced, products could be boxed more efficiently.

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Since a greater proportion of orders contained only fresh and fast-moving items, itwas more efficient to let these fulfilled orders leave the center as soon as possibleto avoid blocking the conveyor belt. Therefore, at the end of the fast-moving itemzone, there was a splitting point leading to two parallel conveyor belts, one movingand one stationary. The conveyor system detected whether a box was closed oropen (the latter had a plastic strip sticking out) and directed its movementsaccordingly. A closed box went onto the moving belt to be sent directly to thetruck. An open box moved onto the stationary belt for other products, includinghealth-related products and cosmetics, to be packed into it. (To ensure high quality,LeShop did not stock health-related products and cosmetics; they were delivered tothe cross-docks at the logistics center when the customer placed an order.) LeShopused a fleet of 10 trucks to deliver the packed shipping boxes to different transferpoints to hand them over to its delivery partner.

Currently, it took an average of 33 minutes to fulfill an order. According toChristoph Kay, Logistics Director, LeShop could increase efficiency by up to 30%

in the logistics center by implementing the following initiatives:

First, LeShop could invest in automation to convert picking into a paperless,electronically controlled process that would minimize human error. The companyneeded to pre-code the layout of the store into the system and equip the packerswith shelf identifier screens and price scanners. Before placing the picked productin the shipping box, the packer scanned it to ensure it matched the order and tocapture price information, thus immediately updating the database via radio waves.

Second, LeShop could increase picking efficiency by reorganizing the center andchanging the picking sequence. For example, if bulk items were picked first andput at the bottom of the shipping box, fresh products could be picked later and put

on top of the bulk items, thus saving one box per order (currently, an averageorder had three boxes).

Third, the company could decrease fulfillment time if it streamlined its productassortment and made further minor process enhancements.

LeShop achieved an order fulfillment rate of 95% (i.e. 95% of orders weredelivered as ordered), which was the highest in the industry worldwide (50% inthe UK and 60% to 70% in Paris). This meant that of the 5,500 products, theaverage availability of each product at picking was 99.8%. On average, the cost offulfilling an order was CHF 24. If LeShop implemented its plan to further increaseits picking efficiency, it could reduce the fulfillment cost to below CHF 20.

Delivery

LeShop delivered to 80% of the Swiss population geographically for a flat fee ofCHF 12, regardless of the number of items or the weight of the order. Ordersplaced from Monday through Thursday before midnight were delivered the nextday between 17:30 and 20:00. Orders placed on Friday before 16:30 weredelivered on Saturday between 7:00 and 9:00. Orders placed between Friday after16:30 and Sunday before midnight were delivered on Monday between 17:30 and20:00. No deliveries were made on Sunday or official holidays. If customers knewin advance that they would not be at home to take delivery, they could choose to

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have the order left at their front door or with a neighbor. About 70% of orderswere left unattended--a particularly high level, which was unique to Switzerland.

LeShop formed a strategic partnership with the Swiss national post office,LaPoste Express, for delivering orders to customers. Since peak hours for LaPosteExpress were in the mornings on working days, it could use its excess capacity todeliver LeShops orders in the afternoons and on Saturday mornings. Therefore,LeShop was able to negotiate a discounted delivery charge and did not have tomake a capital investment in its own delivery fleet (refer to Exhibit 10 for the

fulfillment and delivery models of USAs Streamline and UKs Tesco).

The Customer Management Challenge

Segmentation

According to the latest study, LeShops customers could be classified into ninesegments according to their basket size, purchase frequency and product mix(refer to Exhibit 11). The best customers (segment H) made 5.3 purchases oversix weeks and their average basket size was CHF 248.

Acquiring New Customers

Customer acquisition cost varied according to the method used. Under the MemberGets Member Program, CHF 50 credit was given to the customer who invited afriend to place a first order. LeShop also used telemarketing, direct mailing, print

ads (refer toExhibit 12) and partnerships with womens magazines. These methodscould cost as much as CHF 400 to acquire one new customer. Since only 8% ofhouseholds in Switzerland shopped online, making people aware of online groceryshopping and converting them into LeShops customers was expensive anddifficult, especially since LeShops competitors did not invest much in increasingawareness and adoption of online grocery.

Promotions and Retaining Existing Customers

The first condition for retaining a customer was meeting expectations: easy andsecure online transaction, assortment satisfying his or her needs, quality freshfood, careful picking and packing, timely delivery and great customer care. Tonurture customer relationships, LeShop sent e-mails to customers regularly--atleast every two weeks--to inform them about new products or services andpromotions. To stimulate purchases, LeShop had been using themed merchandisepromotions. Examples of general themes included Halloween, Spring Cleaning,and Fondue and Raclette. The company also used special themes for certainsegments, such as Baby Care.

Starting from February 2002, with the sponsorship of suppliers, LeShop startedexperimenting with general price promotions to enlarge basket size, increase freshpenetration and promote convenience. These campaigns proved to be effective inincreasing the average gross profit per order (refer toExhibit 13).

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In mid-2002, LeShop started experimenting with personalized price promotioncampaigns. LeShop automatically monitored each customers previous purchasesto identify his or her most frequently purchased items that had not been bought inthe previous two purchases. It did this for each of the following three categories--fruit and vegetables, dairy/meat/bread, and others. To trigger repurchase, LeShopoffered that customer price promotions on the selected items. The more acustomer had shopped with LeShop, the more information about individualshopping patterns could be collected for personalized promotions, therebydeveloping stronger customer relationships.

The Internet also allowed LeShop to implement certain promotional ideas thatwere not possible in a physical store. For example, LeShop offered customers afree corkscrew on the website. If a customer clicked on the corkscrew, a list ofwine selections would appear on the screen to stimulate purchases of thesecomplementary goods (refer to Exhibit 14). In addition, LeShop offered freeproduct samples in full-size packs. Once a customer chose a free sample, the item

would be stored in his or her My Last Shopping Basket to trigger repurchase ina future order.

To maintain personalized relationships with customers, LeShop offered eachcustomer his or her own shopping environment. After typing in the login nameand password, a customer would go directly to his or her personal shoppingwebpage to find information such as last purchase, shopping lists and personalizedprice promotion campaigns.

Wanner knew that more effectively utilizing data on customers online purchasingbehaviors and understanding each customers profitability would be helpful forincreasing sales and retaining customers. But it would be a challenge to

implement personalization programs in a systematic and cost efficient manner.

Customer Services

Wanner believed that LeShop was the first to move toward transformingtraditional grocery retailing into a service industry. For example, it offered a100% moneyback guarantee on all deliveries with no questions asked, to resolvecomplaints such as, My bananas were too green. Although the guarantee wasrarely used, it provided a great level of confidence.

Prompt handling and communication of quality issues was also critical forachieving a high level of customer confidence. For example, in 1999 there was anincident concerning contaminated Coca-Cola from a plant in Belgium. LeShopimmediately traced its records and confirmed that none of its Coca-Cola productswere from that plant. Then from its database it identified customers who had boughtCoca-Cola in the previous three months. LeShop immediately sent an e-mail,together with a certificate from Coca-Cola, to these customers to reassure them thatthe Coca-Cola they had bought was safe to consume.

The company also assigned account managers to follow up with new customerson their first three orders to answer any questions or resolve problems in order tosecure full satisfaction. In addition, LeShop monitored customers purchasing

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activities. If they decreased their purchases, an account manager called them toidentify the reasons and try to encourage them to buy more.

Of the customers who left the service after their first trial, more than 90% claimedthat the company had kept its promise. Therefore, the challenge, according toWanner, was not fixing service problems but rather how to keep early adoptersshopping online.

The Big Challenge: Quadruple the Number of Orders

Currently, LeShop was operating with a slim negative contribution margin.Wanners executive team had been working hard to find further ways to improveprofitability, including, for example:

Increase Basket Size and Purchase Frequency: LeShop could discourage

low-value baskets by charging a higher service fee if the basket size did notmeet the minimum amount. It could also develop more effectivepersonalized promotional campaigns.

Enhance Gross Margin: The company could shift the product mix of abasket by increasing penetration of higher-margin categories. It could alsoimprove purchasing conditions with manufacturers.

Improve Fulfillment Efficiency: It could automate and improve the pickingprocess in the logistics center, and provide performance-based incentives topickers.

Decrease Delivery Cost: LeShop could lower the cost by generating higherdelivery volume and focusing its marketing efforts on established routes ofhigh delivery density.

By doing all these, LeShop could turn its contribution margin into a positive one.But even so, the company still needed to quadruple the number of orders andincrease its annual turnover to CHF 50 million--equivalent to the turnover volumeof a medium-sized Swiss supermarket--in order to cover the huge fixed costs,including marketing, payroll, software development and general andadministrative costs, which were difficult to reduce. What else could Wanner andhis team do to break even?

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Exhibit 1LeShop Annual Growth of Sales

Net Sales1

(CHF million2)

Growth

1998 0.24

1999 1.25 + 431%

2000 3.65 + 192%

2001 10.22 + 180%

2002(projected) 13.00 + 27%

Industry Performance

LeShop.ch Migros-shop.ch Coop.ch Spar.ch

Sales 2001(CHF million)

11.53 5.0 1.2 0.5

Market share 63% 27% 7% 3%

National Awareness2002 Top of Mind

12.1% 16.5% 3.9% N/A

Source: Company information

1 Excluding delivery and licensing fees

2 Swiss Franc (CHF) 1 = US$0.67 / 0.68 (euro) on November 27, 2002

3 Including delivery and licensing fees

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Exhibit 2E-grocery in Europe

Key e-grocery market drivers in Europe UK France Switzerland

Socio-demographics

Population (million)Population coverageSurface (thousand km2)% Working women with kids < 5 years% Females employed part-time

59.690%241

55%58%

59.317%544

57%36%

7.280%

4161%27%

Dissatisfaction with grocery shopping

No. of supermarkets and hypermarketsNo. of inhabitants per supermarket (thousand)No. of km2 per supermarket

n/an/an/a

8,9006.761

6,0001.2

7

Internet usage

% of households with Internet access% of households that shopped online

24%31%

20%n/a

26%8%

Marketing and awareness

Historic marketing investment ( million)4

No. of players ACTIVE on the marketAwareness of e-grocery

>35

596%

Paris only

>24

494%

4

335%

E-grocery development 2001

E-grocery sales in 2001 ( million)E-grocery as a % of retail sales

9340.88%

1710.13%*

120.05%

Underdevelopment vs. UK(factor of underdevelopment)

7

(7 times under)

18

(18 times under)

* In France, e-grocers deliver only to Paris. Therefore, the relevant market to consider in terms of

development should be Paris vs. France. And the market development in Paris is in fact 0.76%

(0.13% divided by 17% national coverage).


4 Excluding any in-store promotions in their brick-and-mortar operations

Swiss Franc (CHF) 1 = 0.68 (euro) on November 27, 2002

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Exhibit 3Organization Chart


Receptionist

Admin Assistant

Cat Mgr Food

Cat Mgr Near Food

Cat Mgr/Quality Fresh (CC)

Store Assistant

D. Locher

Store Director

Customer Communication

Webdevelopment / Usability

Webdesigner / Content

CS Agent 1

CS Agent 2

CRM Agent 1

CRM Agent 2

Customer Care Mgr

R. Meurer

Marketing Director

20 Pickers

Operations Mgr

3 Product Reception

Supply Agent

Admin Assistant

C. Kay

Logistics Director

Accountant

Ass. Accountant

Data Mining / Analysis

P. Crevoisier

Finance & Business Process

C. WannerCEO

Product Reception

Receptionist

Admin Assistant

Cat Mgr Food

Cat Mgr Near Food


Store Assistant

D. Locher

Store Director




CS Agent 1

CS Agent 2

CRM Agent 1

CRM Agent 2

Customer Care Mgr

R. Meurer

Marketing Director

20 Pickers

Operations Mgr

3 Product Reception

Supply Agent

Admin Assistant

C. Kay

Logistics Director

Accountant

Ass. Accountant


P. Crevoisier


C. WannerCEO

Product Reception

Receptionist

Admin Assistant

Cat Mgr Food

Cat Mgr Near Food


Store Assistant

D. Locher

Store Director




CS Agent 1

CS Agent 2

CRM Agent 1

CRM Agent 2

Customer Care Mgr

R. Meurer

Marketing Director

20 Pickers

Operations Mgr

3 Product Reception3 Product Reception

Supply Agent

Admin Assistant

C. Kay

Logistics Director

Accountant

Ass. Accountant


P. Crevoisier


C. WannerCEO

Product Reception

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Exhibit 4www.LeShop.ch

Source: Company website

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Exhibit 5Product Assortment


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Exhibit 5 (continued)


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Exhibit 6Value-added Information


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Exhibit 7Layout of the Logistics Center

Areas 4, 5 & 6: Refrigerated Sections

Areas 2 & 7: Slow-moving Items Zone

Area 1: Fast-moving Items Zone

Area 3: Bulk Items Zone


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Exhibit 8Inside the Logistics Center


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Exhibit 9Order Fulfillment Process


Packed shippingboxes delivered toLaPoste Express

Sent to customer on the nextdelivery day

Order routed tologistics centerfor picking

LaPoste Express

www.leshop.ch

Order Orde

Customergeneratesorder online

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Exhibit 10Fulfillment and Delivery Models of Other Online Grocers

USAs Streamline (www.streamline.com)

Fulfillment

Streamline, a US pure play online grocer, had four distribution centers whereexpert shoppers hand-picked items.

Delivery

Streamline served about 8,500 homes in Boston, Washington, DC and Chicago. Itused a fleet of more than 20 refrigerated trucks to make deliveries within a 20- to25-mile radius of its distribution centers.

The company assigned a delivery day (one day of the week) to each customer.Customers could place orders any time and day of the week, until 23:00 the nightbefore the assigned delivery day. Streamline installed an entry-access keypad oneach customers garage so that its drivers could enter and leave orders in thetemperature-controlled cabinets installed by the company. Streamline chargedcustomers a fixed fee per month for the delivery service (US$30 in 2000). Therewere no additional set-up charges, contracts or minimum orders. In 2000,Streamline claimed that it could get the delivery cost down to about US$3 per order.

UKs Tesco (www.tesco.com)

Fulfillment

Instead of building new highly automated distribution centers dedicated tofulfilling online orders, Tesco, one of Britains leading food retailers, opted toexploit its existing network of stores to gain speed in entering the online grocerymarket as a first mover.

An order received on the website was sent to the server computer at the storenearest the customers home. The order was first assigned to the van that woulddeliver the goods, and then sent on to a picking trolley--a shopping cart with ashelf identifier screen and a price scanner. A store employee, who had to competewith in-store shoppers, loaded the trolley and sent it straight to the van fordelivery.

Delivery

Tesco would deliver in a two-hour window that the customer had specified. Itcharged customers a fee of 5 per delivery5, which was far less than the cost ofemploying all the pickers and drivers.

5 1 = CHF 2.3 / US$1.55 on November 27, 2002

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Exhibit 11LeShop: Customer Segmentation

A B C D E F

% of population 25% 60%

% of revenue 10% 60% (E: 45%)

Total spend over 6 weeks(CHF)

54 56 60 90 239 244

Number of transactions 1.1 1.0 1.1 1.0 1.8 1.3

Spend per transactionduring the 6-week period(CHF)

49 56 54.5 90 132.8 187.7

Margin Similar

Average number of SKUsper transaction

6 12 2 22 16 36


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Exhibit 12Print Ad


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Exhibit 13Effectiveness of Promotions (January September 2002)

All ordersOrders without

promotionalitems

Orders withpromotional

items

Orderspenetration

100% 35% 65%

Average basketsize (CHF)

171 150 190

Average basketsize (number oflines)

24.0 18.4 29.3

Margin AverageAverage + 0.4 %

pointsAverage - 0.3 %

points

Average lapse(number of daysbetween orders)

24 24 23


8/2/2019 LeShop_Ch

24/24


Z

- 24 - IMD-5-0615

Exhibit 14Promotions


Date post:	05-Apr-2018
Category:	Documents
Upload:	danka-predolac
View:	214 times
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