Cost-effectiveness in the e-grocery business

In the grocery business online start‐ups, e‐grocers, have in the last few years developed new business models to challenge the traditional bricks‐and‐mortar supermarkets. However, many of the big players in the e‐grocery business, such as Peapod and Webvan in the USA, still operate in the red. They have financed rapid growth by collecting hundreds of millions of dollars from investors. These huge investments have enabled the e‐grocers to enter the grocery market but, on the other hand, ineffective operations have used up capital on operating expenses. If the e‐grocers want to become serious challengers to the traditional bricks‐and‐mortar business, they need to cut operational costs dramatically and fast. This paper illustrates some basic principles for cutting operational costs in the e‐grocery business. The focus is on picking efficiency and order assembly costs. Solutions for achieving better picking efficiency are discussed. In addition, one detailed example of how a grocery distribution centre for efficient picking could be designed is presented.