B-to-C Commerce: More to it than meets the eye
By William C. Copacino -- Logistics Management, 10/1/2000
My last four columns have focused on the Business-to-Business (B-to-B) markets and provided several frameworks to understand these marketplaces better. In my next two columns, I will turn my attention to the Business-to-Consumer (B-to-C) marketplace.
People tend to lump all B-to-C markets together and make sweeping generalizations about how these marketplaces will evolve. I find it much more useful to divide B-to-C markets into three operating models with very different characteristics and economics. They are:
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National Markets . Customers of B-to-C National Markets make periodic purchases of one to five items, which are generally shipped by package-delivery services (FedEx, UPS, USPS, etc.). Under the typical operating model, a limited number of distribution centers (generally one to three) serve broad regional or national markets. The merchandise includes a range of consumer products such as books, CDs, clothing, tools, kitchenware, and toys. Examples of players in the National Markets are Amazon.com, mail-order companies, and eToys. Ordering is increasingly Web-based but can be done by telephone or fax as well.
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Local Markets. B-to-C Local Markets focus on the home delivery of groceries and other consumer goods and include both new Internet-based food retailers (such as Webvan, Peapod, ShopLink, and Homeruns) and traditional food retailers. Orders are placed on a regular basis (weekly or bi-weekly) and generally consist of 40-plus items. The operating model includes a local distribution center that serves a five- to 25-mile delivery radius with regular delivery routes.
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Hour Delivery Markets. The third category of B-to-C commerce covers the short-interval delivery (generally within 30 to 60 minutes) of an evening meal or entertainment. Examples include Cosmo.com and the local pizza shop.
Each of these models has very different operating characteristics and economics from the others. Although logistics and the supply chain are important elements in all of the models, they are likely to be most critical for the Local Markets. For that reason, the strategic choice of an operating model or a supply chain strategy for Local Markets is critical. Do you offer same-day, next-day, or fixed-day-of-the-week delivery? Within what delivery time window? How are time-to-scale and overall economics influenced by store picking vs. small-item picking DCs vs. large, automated DCs?
When scale volumes are reached, the home delivery of groceries can achieve cost parity with purchase from a store. The retailer saves on store inventory, real estate, and labor costs and can shift that money toward funding the home delivery. However, the battle for market share will extend the time needed for many companies to achieve scale.
This sector will be immensely competitive for some time to come. New entrants will battle with traditional food retailers, which will be reluctant to give up volume, given that a 10-percent loss of volume changes a 2-percent net profit to a 2-percent net loss. This intense competitive battle will serve the consumer well-with new services offered at competitive costs. However, it may be a very long time before many home-delivery grocers start making money-if they ever do. It will be an interesting industry segment to watch.
William C. Copacino is the managing partner of Andersen Consulting's Global Supply Chain Practice. A frequent speaker before business and professional groups, Mr. Copacino has a number of publications to his credit, including the book Supply Chain Management: The Basics and Beyond (The St. Lucie Press, 1997). He is based in Andersen Consulting's Boston office, 100 William St., Wellesley, MA 02181. Phone (617) 454-4480.
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