With aggressive new online companies such as Webvan and drugstore.com rocking their foundation, is there a future for supermarkets and pharmacies? Today, they may seem like only competitive gnats: The overall percentages that online players are expected to garner remains small. Forrester Research estimates that online sales of grocery products will be about $500 million in 1999, representing only a small portion of the more than $400 billion grocery business in the United States. Even by 2003, Forrester opines that online players will grab only 2 percent of the overall market for replenishment products.
Though supermarkets are unlikely to disappear anytime soon, they must, however, adapt — in some cases, radically — and evolve. Supermarkets and pharmacies can compete effectively with online retailers by providing online ordering and drive-through pickups of groceries and prescriptions. They can also provide auto-replenishment and home delivery of routine items such as milk, eggs, diapers, bread, and orange juice in partnership with third-party logistics firms. Pharmacies can provide Internet kiosks within stores to provide information to consumers and to pharmacists, similar to Internet kiosks that can be found in some Gap apparel stores. Despite the obvious nature of these defensive moves, it is hard to find examples of incumbents that have moved aggressively to reinvent their delivery and fulfillment infrastructure.
Supermarkets can also cater to time-starved customers by creating a “store within a store” focused on speed and service. They can carve out an area of the store that replicates a convenience store environment — limited selection, quick checkout, convenient parking, and higher prices. If they guarantee a 15-minute end-to-end shopping trip, supermarkets can gain an edge over online grocers. By acting swiftly to create “click-and-mortar” hybrid models, supermarkets and pharmacies can defend their franchises quite effectively from online players that lack a physical point of presence. But if they do not act quickly, they will face debilitating erosion of sales and profits.
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