Taking into consideration the fact that online grocery retailing was just around $500 million from 20 million online shoppers in approximately $450 billion grocery industry with net margins around 1%, it should be highlighted that the first alternative for revival of Homegrocer.com is demerge from Webvan and restructure the company through rightsizing / downsizing, de-layering and business process reengineering. The online retailer could continue business in all existing centers but improve its delivery charges slabs to $7 on orders of $100, $4 for orders $100 - $200 and free delivery above $200. The second alternative for revival is to temporarily close company distribution centers or better outsource warehousing and delivery operations in some regions where costs are significantly higher than other centers. In this way, the company could continue its existing operations in high potential online grocery markets. It is now mandatory for homegrocer.com to expand its target market by adding new market segments instead of focusing only on upper-middle class families and working professionals with incomes of $75,000 and above. The company could initiate “online deal strategy” on some grocery products to middle-middle class young adults and elderly persons (with income between $30,000-60,000) who demand discounted produce with convenience.
Evaluation of Alternatives
The first alternative about rightsizing will surely reduce company size and employees, while making management simpler by elimination of redundant layers to transform into a matrix structure. In addition, the change in delivery charges is essential because 85% of homegrocer.com had an order size above $75, thus they benefited from free delivery charges. In contrast, the $100 slab will not only increase average order size but also generate delivery revenues from all customers who will order grocery worth $200 using online channel. The upper-middle customers could easily afford it because of high quality of fresh perishable products offered by HOMEGROCER. The second alternative is to scale back operations to focus on high growth regions for first 2 years and to outsource certain enormous loss-making centers to reduce burden. Finally, the addition of new deals for different segments of both and upper middle-middle customers will increase sales volume and revenue, thereby enabling HOMEGROCER to reduce cash flow problem and fixed costs.