Problem Definition
Our client is a supermarket chain that is considering whether they should enter the emerging online grocery delivery business where consumers order their groceries online and have them delivered to their home. Currently, two competitors have entered the online market in the client's home-turf in San Francisco. Both competitors are quickly gaining market share. One competitor is an online player and the other one offers both traditional shopping as well as online ordering.
Our client hired you to determine if they should enter the online market.
Comments
This is a candidate-led case which means that the candidate takes the case from start to finish.
Candidate should pay closely attention to the objective as the client specifically wants to know if they should enter. The case focuses more on the qualitative aspect of market entry.
- Online segment seems attractive with good margins & growth rates.
- Client's existing customers fit the online customer profile, so there is a market fit here.
- Client should enter by launching a new venture with its own name, team & culture that focuses solely on the online segment.
Detailed Solution
Paragraphs highlighted in green indicate diagrams or tables that can be shared in the “Case exhibits” section.
Paragraphs highlighted in blue can be verbally communicated to the interviewee.
The following framework/structure provides an overview of the case:
The candidate should get a clear understanding of the customer served in the online market and the competitor's movements & positions.
I. Customer
The candidate should understand the current customer of the client and match it up with the potential customer that orders online.
Information that can be shared if inquired by the candidate:
- In the SF area, the client serves upper-middle class customers.
- These customers have an annual income of $60,000-$120,000.
- They live and work primarily in the SF area and are considered to be highly educated.
- Most customers have double-income households so convenience is important for them.
To understand the customer that shops online, share Table 1 containing an online customer profile.
Candidate should note that there are similarities between both customer profiles, so it should be a good fit to offer them the online service. But more analysis is required.
II. Competition
Candidate should ask for more info on competitors that are already present in the market to see how they're doing in order to assess the market attractiveness.
Information that can be shared if inquired by the candidate:
- Both competitors and client company currently have a 20% market share.
- The online player quickly build up a market share of 20% in 3 years time.
- The full online player with no stores is growing the fastest in the online market.
- Since their core business is online delivery, their growth is stronger than the others who still have physical stores to maintain.
- The online player generates profit margins of around 5% in comparison with the 10% margin that our client is generating.
- The player doing both online & offline has a 1% margin with his online business and a 7% margin in his physical store segment
Candidate should note that the market seems quite attractive to enter given that one competitor has already reached a similar market share and is growing fast with 5% margins.
Candidate should also note that it seems more beneficial to have a business focusing solely on online delivery to improve margins, since the player doing both isn't winning with margins in either segment.
III. Recommendation
- It seems like a good idea to enter the market since our existing customer matches the customer profile of online shoppers, so there is a market fit.
- Also, margins seem good enough and the growth rates indicate that there are good economics to capture in that segment.
The client should enter the segment by creating a seperate business that operates fully independent from the client's main business so that the new venture can fully focus on online delivery.
Judging by the performance of the fusion-player, margins are compromised once you try to do both segments under one roof.
Difficult Questions
- What factors could be a possible liability when entering the online segment for our client?
- Should the company uses existing infrastructure or invests in new ones? What risks might play a role here?
