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Internet grocery business in Japan current business models and

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					Internet grocery business in Japan: current business
models and future trends

                                 Sachiko Ogawara
                                 School of Business Administration, Gonzaga University, Spokane,
                                 Washington, USA
                                 Jason C.H. Chen
                                 School of Business Administration, Gonzaga University, Spokane,
                                 Washington, USA
                                 Quan Zhang
                                 School of Business Administration, Gonzaga University, Spokane,
                                 Washington, USA
Keywords                                                                                          2001). With the bankruptcy of Webvan, a
Internet, Marketing,               Introduction                                                   number of other similar businesses also
Food products, Japan
                                    Since 1996, traditional supermarkets have                     failed (e.g. HomeRuns.com and Ahold).
Abstract                            been challenged by a wave of Internet                         Clearly, selling groceries on the Internet with
The launch of a wave of Internet    grocery retailers. However, the Internet                      home delivery is more difficult than
grocery retailers over the last six
years presents a serious challenge
                                    grocery model lost its shine in July 2001 as                  anticipated (Yrjola et al., 2002).
                                                                                                                    È È
to the traditional supermarket      the top Internet grocer, Webvan, filed for                      One of the reasons of these failures is their
business model. The Internet        bankruptcy. Webvan was established in                         lack of brick-and-mortar partners. For
grocery landscape changed
                                    1996 and began the business in San                            example, traditional supermarkets such as
radically in July 2001 when the top
Internet grocer, Webvan, filed for  Francisco in 1999. It acquired the second                     Albertsons and Safeway have recently
bankruptcy. With the bankruptcy     largest online grocery company,                               expanded into the online arena. These stores
of Webvan, almost all the major     HomeGrocer, in 2000.
stand-alone online grocers in the                                                                 have the luxury of using their own stores as
USA have disappeared. Indeed,
                                      Although Webvan expanded aggressively
                                                                                                  warehouses and not having to invest heavily
traditional supermarkets such as    into the Seattle, Chicago, and Los Angeles
Albertsons and Safeway have         markets, it never became profitable. Webvan                   in distribution centers. They can pick
recently been expanding into the    established distribution centers in those                     groceries from their storefront and deliver to
online arena. In Japan, major                                                                     customers charging a shipping fee of $9.95.
traditional supermarkets have
                                    areas and delivered groceries to customers
been seriously working on           directly from these distribution centers. This                They have successfully introduced their
establishing online services in the business model was doomed from the start                      online services into cities such as Portland,
metropolitan area with a            with a high cost structure in a historically                  Los Angeles, and San Francisco. Their
``brick-and-click’’ model. Examines
                                    low-margin grocery retail industry. In                        successes seem to stem from having
strategic reasons for today’s
Japanese supermarkets to try        general, Internet retailers benefit from                      positioned their online services as
establishing online grocery         reducing the inventory cost. In this case,                    value-added service for customers.
businesses. Also addresses          Webvan always had to have many lines of
critical success factors and                                                                        In Japan, major traditional supermarkets
                                    merchandise in its warehouses to provide
current limitations based on                                                                      have been seriously working on establishing
socioeconomic conditions,           quick deliveries. Additionally, to compete
                                                                                                  online services in metropolitan areas with
Japanese culture, and expected      against traditional supermarkets, the
future trends.                      company could not charge high enough                          similar business models as those of Albertson
                                    handling and shipping fees to cover the cost.                 and Safeway. Unlike their counterparts in
                                    Worse yet, Webvan did not have the same                       the USA, because of the intense competition
                                    buying power (and therefore discounts) as                     from supercenters, convenience stores, and
                                    traditional supermarkets (Natsuki, 2001). In                  food-specialized supermarkets, the success of
                                    any lower-margin business volume is the                       their online business could mean life and
                                    key to profitability. Companies have to                       death to their companies. With current
                                    secure enough orders to operate at near                       limitations based on socioeconomic
                                    capacity all the time, and usually it takes two
                                                                                                  conditions, Japanese culture and expected
                                    to five years for a new company to acquire
                                                                                                  future trends in mind, this paper discusses
                                    such a number of customers (Kuramochi,
                                    2001).                                                        operation and service concepts in
                                      On the operation side, Webvan depended                      Internet-grocery business. We also examine
                                    on technology as the driver of its business                   strategic reasons for today’s Japanese
                                    while overlooked the basics of the grocery                    supermarkets in establishing online grocery
Industrial Management &
Data Systems                        industry (Himelestein and Khermouch,                          business.
103/9 [2003] 727-735
# MCB UP Limited                 The Emerald Research Register for this journal is available at   The current issue and full text archive of this journal is available at
[ISSN 0263-5577]
                             ]
[DOI 10.1108/02635570310506142   http://w ww .emeraldinsight.com/researchregister                 http://w w w .em eraldinsight.com /0263-5577.htm

                                                                                                                                                               [ 727 ]
Sachiko Ogawara,                                                                 When sales volumes are sufficiently large, it
Jason C.H. Chen and             Operations/service concepts for                  will need a totally new direct channel
Quan Zhang                     Internet-grocery companies                        between the producers and the consumers
Internet grocery business in
Japan: current business        Most of the strategic efforts in the              (Figure 1, II). In this business model,
models and future trends       Internet-grocery business today focus on          Internet-grocers purchase items straight
Industrial Management &        improving the purchasing transaction and          from producers or importers, stock products
Data Systems
103/9 [2003] 727-735           physical distribution of goods.                   in local distribution centers and deliver
                               Unfortunately, without offering their             directly to consumers. Streamline and
                               customers more value, simply improving            Webvan in the USA, and Matomera in
                               ordering and fulfillment does not make            Sweden operate on this model. When the
                               Internet-grocery shopping a viable                number of customers increases, order
                               competitor to the current supermarket             packing must take place in the distribution
                               business model. Some of the potential new         centers rather than in supermarkets to
                               ``values’’ include operating concepts (Sma ros
                                                                            Ê    achieve better services and lower costs. To
                               et al., 2000), with different service levels      further decrease delivery costs, flexible
                               (Punakivi and Saranen, 2001; Punakivi et al.,     method of receiving must be devised for
                                                                                 customers. These service level alternatives
                               2001).
                                                                                 will be described below.
                               Operational alternatives
                               Operational alternatives include                  Service level alternatives
                                                                                 Attended reception is when goods are
                               intermediary and direct. From a consumer’s
                                                                                 delivered with customers receiving them in
                               point of view, the business model Internet
                               grocers use is the same old thing; the only       person. On the other hand, if the goods are
                                                                                 dropped off at the location without requiring
                               difference is that ordering takes place using
                               the Internet and the items are delivered to       customer presence, it is called unattended
                               the customer’s home. Upon closer                  reception. In the latter, some kind of boxes
                               examination though, there are actually two        must be in place for the delivery. Since
                               different business models (Kamara inen et al.,
                                                              È È È              unattended reception incurs the installation
                               2001a, b). In the first model, Internet-grocers   cost of boxes for new customers, this model
                               serve as an intermediary in the supply chain      slows down the company growth. For a
                               by picking groceries from a supermarket or        company that looks for fast growth, perhaps
                               ``cash and carry’’ and delivering these to the    attended reception is necessary. However,
                               households (Figure 1, I.A and I.B). This          once the repetitive purchasing and stable
                               Intermediary model is based on an                 demand of goods begin to take place,
                               assumption of occasional deliveries and           unattended reception proves to be more
                               small sales volumes ± but requires quick          convenient to customers and more cost
                               home delivery.                                    effective to companies. According to
                                                                                 Punakivi and Saranen (2001), the unattended
Figure 1                                                                         reception reduces home delivery costs by up
An Internet-grocery business model                                               to 60 per cent. However, due to its high cost
                                                                                 and requiring customer commitment,
                                                                                 unattended delivery has not been widely
                                                                                 used.
                                                                                    Two types of boxes may be used in
                                                                                 unattended deliveries: reception box and the
                                                                                 delivery box. The reception box is simply a
                                                                                 refrigerated, customer-specific reception box
                                                                                 installed at customer’s garage or home yard.
                                                                                 The delivery box is an insulated secured box
                                                                                 equipped with a docking mechanism that
                                                                                 deliverers can drop off and secure at the
                                                                                 customer site. The reception box is a more
                                                                                 effective mechanism for home deliveries
                                                                                 since it requires less space on the truck. On
                                                                                 the other hand, delivery box requires a
                                                                                 smaller cost to achieve the unattended
                                                                                 reception that potentially enables a faster
                                                                                 growth rate and higher flexibility in the
                                                                                 future. The drawback is the additional cost of
                                                                                 collecting the empty boxes later.
[ 728 ]
Sachiko Ogawara,                                                                   infrastructure, it will take more time for B2C
Jason C.H. Chen and             E-shopping environment in Japan                    market to mature in rural areas.
Quan Zhang
Internet grocery business in   Internet growth                                        As of 2001, 17 per cent of Japanese Internet
Japan: current business        According to InfoCom Research, 60 million           users have shopped online at least once. This
models and future trends                                                           figure is the eighth largest in the world
                               people, or approximately 46 per cent of the
Industrial Management &                                                            (Taylor Nelson Sofres, 2001). According to
Data Systems
                               Japanese population, use Internet. In terms
103/9 [2003] 727-735           of households, the penetration reached 49 per       Internet.Com, as of June 2002, 4 per cent of
                                                                                   Japanese Internet users have shopped
                               cent in 2001 (InfoCom Research, 2002a). In
                                                                                   groceries online, and 36 per cent of them
                               contrast, this figure was 19.2 per cent and 35.3
                                                                                   were interested in using online supermarkets
                               per cent in 1999 and 2000, respectively. Even
                                                                                   (Japan.internet.com, 2002).
                               though these figures are much lower than the
                               46.3 per cent and 51.3 per cent for the USA in      Mobile commerce
                               the same periods, InfoCom predicts that             Cellular phones are quite popular in Japan.
                               Japan will exceed the USA in 2002 (InfoCom          As of July 2002, 55 per cent of the population
                               Research, 2001).                                    have cell phones (Telecommunications
                                  This rapid increase in the Internet              Carriers Association, 2002), among them 44
                               penetration rate is caused by the large-scaled      per cent own browser phones (Video
                               diffusion of broadband that began in 2001.          Research, 2001). With this kind of
                               Until 2000, dial-up access accounted for more       connectivity, the stage is set for the
                               than 80 per cent of Internet connection             development of mobile commerce.
                               (Society for the Study on Internet Business,        Unfortunately, unlike in the USA, where
                               2001). Hindered by high monthly charges and         credit cards and debit cards methods have
                               non-flat rate schedules, it was difficult for the   been well established as payment collection
                               growth of Internet usage. With the                  methods for B2C businesses (Wang, 2001), in
                               reasonably priced flat-rate schedules,              Japan even the B2C companies today have
                               broadband not only converts many existing           struggled to find safe and convenient
                               dial-user to switch, it attracts many more          payment methods because checks and credit
                               new home users. As of July 2002, 60 per cent        cards are not widely accepted as a mode of
                               of broadband users have constant access to          transaction settlement (Ogawara et al.,
                               the Internet. A total of 80 per cent of             forthcoming). When Japan’s largest cell
                               broadband users who switched from analog
                                                                                   phone service company, NTT Docomo,
                               lines testify that they have increased their
                                                                                   introduced i-mode (an Internet connecting
                               Internet usage (InfoCom Research, 2002b). It
                                                                                   service) cell phone in 1999; due to its
                               is predicted that the broadband penetration
                                                                                   convenient settlement system for e-shopping
                               rate will reach 80 per cent by 2003. This will
                                                                                   i-mode was expected to become one of the
                               dramatically accelerate popularization of the
                                                                                   main infrastructures of B2C businesses
                               Internet shopping.
                                                                                   (Diamond Publishing, 2001).
                                                                                     In i-mode systems, charges on purchases
                               Internet user profile
                                                                                   are included in telephone bills. When using
                               For most Japanese families, grocery
                                                                                   i-mode, e-retailers no longer have to worry
                               shopping is the woman’s responsibility;             about collections and customers gain the
                               therefore easy access and attractiveness of         convenience of a one-step, centralized
                               Internet for this population segment are            payment. Consequently, many e-shops have
                               essential to the success of Internet grocers.       become official sites of i-mode, and some
                               According to a study from Video Research            online supermarkets accept orders from
                               NetCom (2001), the digital divide between           i-mode. Unfortunately, with the exception of
                               male and female is disappearing. As of April        those e-retailers who provide digital
                               2001, the number of female Internet users has       contents, cellular phones have not yet
                               increased from 35.6 per cent in 1999 to 42.3 per    become the main access method. The
                               cent of the total Internet users. However, a        primary culprit is the cell phone’s small
                               large digital divide still exist between urban      displays and the poor search interface. As a
                                                                                   result, only 4 per cent of cellular phone
                               and rural regions. A survey conducted by
                                                                                   owners have used their cellular phones to
                               Japan Access Rating in May 2001 shows that
                                                                                   shop online (Nikkei Net Business, 2002).
                               while more than 30 per cent of people use           Consumers currently are using this wireless
                               Internet in metropolitan areas such as              Internet access mainly for e-mail, ringer
                               Tokyo, Kanagawa, Chiba, and Saitama                 melody distribution, weather forecast,
                               prefectures; less than 10 per cent of people        general news, music downloading, and traffic
                               use Internet users in some rural areas (Japan       information. However, mobile PCs possibly
                               Access Ratings, 2001). In terms of Internet         will become part of main infrastructures in
                                                                                                                           [ 729 ]
Sachiko Ogawara,               mobile commerce in the near future. A recent      demand manufacturers to produce private
Jason C.H. Chen and            survey shows that, while 46.5 per cent of         brands and provide quantity discounts,
Quan Zhang
Internet grocery business in   current Internet users favor cellular phones      though such practice cuts into
Japan: current business        as a future tool for mobile commerce mini         manufacturers’ profit.
models and future trends       PCs and pocket PCs account garners 22.0 per     3 Rivalry among existing competitors is
Industrial Management &        cent (Nikkei Net Business, 2002).
Data Systems
                                                                                 strong. Several supermarkets have been
103/9 [2003] 727-735           PC-specialized data-communication services        scrambling for customers in the same
                               such as AirH have gained popularity in            markets, and price competitions have
                               business use lately. As the prices of such        intensified in a slow economy.
                               services become affordable to general           4 Because the legal restrictions placed to
                               consumers, PC-based mobile B2C market             protect residential environment, the
                               may expand as a result.
                                                                                 barriers to entry are quite high in Japan.
                                                                                 The opening of large stores (defined as
                                                                                 1,000m2 or more) in residential
                                The supermarket industry in Japan                neighborhood is severely limited.
                               According to Porter, the bargaining power of    5 Due to the abundance of alternatives such
                               buyers, the bargaining power of suppliers,        as supercenters, convenience stores, and
                               the rivalry among existing competitors, the       food-specialized supermarkets, the
                               threat of new entrants, and the threat of         strongest competitive force for existing
                               substitute products are the five competitive      supermarkets is the threat of substitute
                               forces that control any industry (Figure 2):      retailers. According to Commerce
                               1 The bargaining power of buyers in the           Statistics (Ministry of Economy, Trade
                                  supermarket industry is strong, especially     and Industry, 1999), from 1997 to 1999 the
                                  in metropolitan areas where many               sales of entire retail industry decreased
                                  national and regional markets have             8.0 per cent. The break-down figures show
                                  already been crushed. Consumer choices         that sales of convenience stores and
                                  are abound. It is quite common to have         food-specialized supermarkets actually
                                  two or more supermarkets within 20             increased by 20.2 per cent and 8.5 per cent
                                  minutes walk from any residence.               respectively. The supercenters saw their
                               2 Just like in the USA where retailers gain       sales decreased by 9.0 per cent, but this is
                                  strength through consolidation over their      minor when compared with the whopping
                                  suppliers, the bargaining power of             40.1 per cent decline in supermarkets sales
                                  suppliers in Japan is relatively low; for      (Ministry of Economy, Trade and
                                  example, the largest national chains can       Industry, 1999).


                               Figure 2
                               Porter’s five competitive forces




[ 730 ]
Sachiko Ogawara,               This phenomenon of ``going small’’ is the         has grown to the stature of ``big business’’
Jason C.H. Chen and            result of lifestyle change in Japan. Over the     yet, some have expanded their service areas
Quan Zhang
Internet grocery business in   years the number of two-income families and       and/or have turned profitable. They all have
Japan: current business        singles has grown in the metropolitan areas.      to face the following common challenges:
models and future trends       Many live in the suburbs but commute to               Reasonable yet profitable pricing. Even
Industrial Management &        downtown by buses and trains. The average             with added convenience, customers still
Data Systems
103/9 [2003] 727-735           commuting time in the Tokyo metropolitan              refuse to pay premium prices for
                               area is 45 minutes (Statistics Bureau and             groceries. With delivery charges added,
                               Statistics Center, 1999) but often extends to         the actual cost may deter would-be clients.
                               more than one and half hours. Because the             Flexible delivery. For any B2C operation,
                               basic commute is already long, few people             order fulfillment is one of the most
                               choose to take a detour to a supermarket on           important critical success factor (Duffy
                               their way home. The typical solution is to            and Dale, 2002); in addition, online
                               wait until the weekends and drive to                  services’ greatest selling point is
                               supercenters and/or food-specialized                  convenience. Hence, establishing superior
                               supermarkets on the outskirts to buy in bulk          delivery systems is a key for the online
                               and shop in convenience stores during                 supermarket business. Delivery should be
                               weekdays. Because of the high demand of               flexible and quick enough to attract
                               convenience stores, they sprout                       customers but not at the cost of sacrificing
                               everywhere; there is now one within a                 operational efficiency.
                               ten-minute walk from any residence in the             Easy-to-use item-search system. If
                               metropolitan area. Moreover, taking                   customers have to jump over too many
                               advantage of their small floor spaces,                hoops to find what they want to buy,
                               convenience stores can be placed at locations         online services would end up with just
                               near bus stops or stations. The success of this       giving customers a different type of
                               strategy adopted by convenience stores also           inconvenience in exchange for the
                               accords with the fact that lately speed and           inconvenience of going to a supermarket
                               accessibility to products and services has            by themselves.
                               been becoming a more and more important               Safe and convenient settlement systems. As
                               differentiation factor (Savoie and                    mentioned earlier, only 10 per cent of
                               Raisinghani, 1999).                                   online B2C shops in Japan adopted credit
                                 This shopping pattern has distanced people          cards as a payment method in 1999.
                               from traditional supermarkets. Furthermore,           Prospective online grocery shoppers are
                               the customers who got away are high-profit            not ``innovators’’ and will need a payment
                               customers. Generally, customers who shop at           method they feel comfortable using.
                               supermarkets fall into two distinct groups:           Assurance of the quality of perishable food.
                               bargain hunters and time savers. The latter           Freshness and appearance of perishable
                               group would rather save time and tend to buy          food are of utmost importance to
                               non-discounted merchandises, and this is the          Japanese. They refuse to buy day-old fish,
                               group traditional supermarkets are losing in
                                                                                     meat, and milk priced the same as those of
                               an increasing rate. That is why traditional
                                                                                     current day; and they are reluctant to
                               supermarkets desperately turn to online
                                                                                     choose shapeless cucumbers. In fact,
                               services to bring back those time savers.
                                                                                     many consumers list ``not being able to
                                 The online service indeed shows promise,
                               and Web seems to be the preferred means by            choose food by eye’’ as a reason of not
                               customers. According to Tokyo Mycoop, a               using online supermarkets
                               groceries mail-order company that delivers            (Japan.internet.com, 2002).
                               groceries to contracted customers on a                An integrated full-service suite. The
                               weekly basis and just started acceptance of           challenge is to integrate company’s
                               orders on the Web, average sales per                  customer service functions to allow
                               shopping through the Internet is                      customers check the information and
                               approximately ¥1,000 ($8.4). This is higher           status of their orders online in a very
                               than paper-based orders (Nikkei Net                   easy, convenient manner.
                               Business, 2001).

                                                                                  Current business model of online
                                The challenges of Internet grocery               supermarkets in Japan
                               business in Japan                                 The three most important national
                               Many online supermarkets in Japan were            supermarkets are Seiyu, Ito Yokado, and
                               established in 2000 and 2001. Although none       Izumiya; and in many cases they seem to
                                                                                                                          [ 731 ]
Sachiko Ogawara,               adopt similar solutions to meet the              9p.m. For the same day delivery, customers
Jason C.H. Chen and            challenges described above. The prices for       will need to place their orders by 5p.m. at any
Quan Zhang
Internet grocery business in   their groceries are the same for online and      of these supermarkets.
Japan: current business        in-store purchases; the difference is the           Even with Seiyu’s delivery schedule, it is
models and future trends       delivery charge. Seiyu charges ¥500 ($4.10)      still inconvenient for working people. There
Industrial Management &        per delivery for orders under ¥5,000 ($37.90),   is an implicit rule in Japanese work places
Data Systems
103/9 [2003] 727-735           and Ito Yokado and Izumiya charge ¥300           that full-time workers are expected to work
                               ($2.40) for orders under ¥10,000 ($75.60).       overtime almost everyday, and the worker
                               Customers seem to think these charges to be      must comply. To use Seiyu’s service,
                               reasonable; however, it is not easy for          customers need to be home to receive the
                               supermarkets to cover the delivery costs.        delivery by 8p.m. at the latest. Yet, with
                               Seiyu outsources its system maintenance and      two-hour overtime they cannot possibly be
                               delivery, for example. The cost for system       home in time. If a customer misses the
                               maintenance runs ¥250,000 ($2,032) per           delivery, Seiyu will try again the following
                               month, and each delivery may cost as high as     day. Since some groceries are perishable, and
                                                                                there is charge for additional delivery,
                               ¥720 ($5.45). This cost per delivery is on a
                                                                                customers are not likely to use online
                               sliding scale with respect to the number of
                                                                                supermarkets.
                               orders. According to Seiyu, 40 to 50 orders
                                                                                   With respect to an easy-to-use item-search
                               are needed per day per shop for them to
                                                                                system, these supermarkets have simplified
                               break-even (Nikkei Shimbun, 2001). To boost
                                                                                the process by reducing the number of items
                               the number of orders, these three
                                                                                sold on the Web. For example, instead of
                               supermarkets use the following rules to
                                                                                listing the same 6,000 items on the Web as in
                               select their markets for online businesses.
                                                                                the store, Seiyu has only 3,000 items on the
                               The market must be in a densely-populated        Web (Nikkei Shimbun, 2001). Izumiya went
                               area; a metropolitan area; and where their       one step further and only lists 1,700 items.
                               brand power is strong.                           However, this solution may backfire because
                                  The third requirement is especially           quality of product merchandising and
                               important, since brand power greatly             portfolio is one of major factors that
                               influences their Web sales. For example,
                                                                                influence consumer satisfaction in their
                               Mycal lost its market share against Seiyu in
                                                                                e-shopping experiences (Cho and Park, 2001).
                               Tokyo area because Seiyu has better brand
                                                                                Customers might be frustrated that their
                               name loyalty in that market (Matsuda, 2001).
                                                                                favorite brands of soy sauce or shampoo are
                               Both Mycal and Seiyu are national
                                                                                not sold online. If customers will have to go to
                               supermarket chains well known to almost all
                                                                                stores to pick up those items, then it defeats
                               Japanese. However, while Seiyu is
                                                                                the purpose of shopping from home and they
                               headquartered in Tokyo with 127 stores in
                                                                                might choose to keep their current shopping
                               the Tokyo area, Mycal is headquartered in
                                                                                styles.
                               Osaka and has only 25 stores in the Tokyo
                                                                                   There are lots of room for improvement in
                               area. As a result, Mycal and Seiyu had
                                                                                these item-search systems as well. For
                               respectively 700 and 6,500 online membership
                                                                                instance, Albertson sells 25,000 items on the
                               in the year 2000. Moreover, transferring
                               existing brands to the Web is much cheaper       Web. We conducted an informal experiment
                               than creating new brands (Schneider and          of searching 20 items (such as Colgate
                               Perry, 2000), so by focusing on markets where    toothpaste and Vaseline skin lotion). It takes
                               creditworthiness of their real stores is high,   17 minutes to locate all the items on Seiyu’s
                               companies may significantly reduce their         Web site and 18 minutes on Albertson’s.
                               promotion costs. Consequently, the three         Based on the number of the searched items
                               national supermarkets Seiyu, Ito Yokado,         and amount of time spent, it is obvious that
                               and Izumiya have been providing online           Albertson’s item-search system is more
                               services only in the Tokyo area,                 efficient. On Albertson’s Web, customer can
                               Tokyo-Edogawa area, and Osaka area,              request a list of items by category (Personal
                               respectively.                                    Care ± Skin Care ± Body Lotions) or by item
                                  With respect to flexible delivery solution    (Lotion ± Hand and Body). Seiyu’s Web
                               (Table I), these supermarkets all provide        requires that customers request a list of
                               delivery windows, albeit differ in details.      items by category only. If a customer does not
                               Seiyu gives customers a two-hour window of       know the right category for the item, then it
                               their choice from 2p.m. to 10p.m. Izumiya’s      is all trial and error. It is obvious that
                               customers have the same two-hour delivery        Japanese online supermarkets must improve
                               window but only from 2p.m. to 8p.m. The          their item-search systems to make it feasible
                               most generous one is Ito Yokado which            to have the same number of items as sold in
                               requires a three-hour window from noon to        stores.
[ 732 ]
Sachiko Ogawara,
Jason C.H. Chen and            Table I
Quan Zhang                     Home delivery solutions for three Japanese companies
Internet grocery business in
Japan: current business        C om pan y    O rde r      De livery                          Re ception D elivery tim e w ind ow
models and future trends
                               S eiyu        B y 17 :00   Sam e da y                         Attende d    Tw o-hour de live ry tim e w indow s b etw ee n
Industrial Management &
Data Systems                                                                                                14:00 -22 :00
103/9 [2003] 727-735                         A fter 17:00 Ne xt d ay or other arran ged tim e Attende d   Tw o-hour de live ry tim e w indow s betw ee n
                                                                                                            14:00 -22 :00
                               Ito Yoka do   B y 17 :00   Sam e da y                         Attende d    Th ree-hour delivery tim e w in dow s
                                                                                                            betw een 1 2:0 0-2 1:00
                                             A fter 17:00 N/ A
                               Izum iya      B y 17 :00   Sam e da y                         Attende d    Tw o-hour de live ry tim e w indow s b etw ee n
                                                                                                            14:00 -20 :00
                                             A fter 17:00 Ne xt d ay or other arran ged tim e Attende d   Tw o-hour de live ry tim e w indow s betw ee n
                                                                                                            14:00 -20 :00

                               With respect to settlement system, the three                lieu of recipient’s signature. The e-locker
                               supermarkets accept cash on delivery (COD)                  transmits the delivery information to a
                               and credit cards as the means of payment.                   server at an apartment management
                               Izumiya’s credit card settlement system                     company, and the server sends a notification
                               processes transactions via a portable                       to the recipient’s PC, PDA and/or cellular
                               terminal instead of transferring credit card
                                                                                           phone. If a recipient does not pick up those
                               numbers through the Internet. This method
                               of credit card settlement seems to be more                  goods in three days after the notification, the
                               acceptable by the majority of the Japanese,                 server will e-mail another reminder. All
                               who are weary of credit card numbers being                  records of receiving and retrieving goods are
                               intercepted on the Internet.                                stored in the server. The e-lockers developed
                                 Regarding the customer anxieties about                    by Full Time System (Figure 3) can even
                               quality of perishable food, Seiyu’s ``picking               process settlement electronically. Customers
                               staff’’ chooses the best and freshest items for             may use a card to open lockers and pay for
                               delivery. Providing quality groceries all the               goods simultaneously. By using Full Time
                               time is especially critical for online                      System’s e-lockers, customers can order and
                               supermarkets because once a customer
                                                                                           receive groceries at anytime, and online
                               receives stale fish or a blackened peach,
                                                                                           supermarkets can deliver groceries much
                               she/he would not want to use the online
                               service again, ever.                                        more efficiently. This will significantly bring


                                                                                           Figure 3
                                 Future trend ± ``e-locker’’                               e-locker
                               In June 2001, out of a total of 212 stores Seiyu
                               only provided online services at eight stores
                               in the Tokyo area. There are now 15,000
                               registered customers and 130 to 160 orders
                               each day. The company has been expanding
                               the service areas. By August 2002 the service
                               has been provided in 12 of 208 stores.
                               However, this growth is slower than
                               expected. The critical bottleneck is the
                               delivery system. As mentioned earlier, the
                               current system still requires customers to
                               make time to wait for deliveries ± which is
                               difficult for these full-time workers.
                                  To remedy, B2C begins to look closely to
                               ``e-lockers’’ (a reception box). E-lockers are
                               computerized personal lockers designed to
                               receive home-delivery, and some apartments
                               have already come furnished with them. The
                               basic system of e-locker works this way: A
                               deliverer puts items into a locker and
                               receives a ``receipt’’ issued by the locker in
                                                                                                                                                [ 733 ]
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