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Research Proposal on the Feasibility of launching an online retail store in India and understanding the consumer perception about online grocery retail.

Submitted by:Arnab Guha Mallik PGP/15/074 Section B



Feasibility of launching an online retail store in India and understanding the consumer perception about online grocery retail.

This paper attempts to find out about the feasibility of launching an online grocery retail store in India and aims to find out the various factors affecting online grocery purchase. The aim of the paper is to highlight the drivers as well as inhibitors that influence online purchase. Also the paper aims at understanding the consumer perception about online grocery retail and how comfortable they are with the new concept. The paper also discusses the impact of high online complexity and its implications and future research. Keywords: Online grocery retail, Factors affecting purchase, stakeholder analysis, consumer behaviour

The internet retailing sector in India grew at a phenomenal rate of 32% in the year 2010 and is estimated at Rs. 34.7 billion. It is expected to grow at a CAGR of 21% in the next five years.


Due to the rapid proliferation of the internet, the number of internet users in India has already reached 140 million and India is expected to have the third highest number of internet users in the world by 2013.

Online grocery retail provides an elegant solution to various consumer groups such as Double Income No Kids (DINKs) families, bachelors working long hours etc.

Growth of the online grocery retail sector will provide benefits like convenience, timesaving, any time shopping and a better comparison of products and prices leading to a more informed decision.

While consumer electronics (65% growth) and media products (53% growth) have bolstered the internet retailing sector, the online retailing of food and grocery items has a long way to go before it can compete with store based retail.

Europe and US on the other hand have much more developed online food retail markets contributing 53% and 43% of total online sales.

The market for online grocery retail in India is small and fragmented with very few retailers like Groceryshop.in and Storrz.in having a reliable retailing infrastructure.

The idea is to investigate why the market for online grocery retail has not been successful in spite of grocery being a low customer involvement product.



Shopping for groceries is assumed to be a purposeful activity repeated at regular time intervals. It may therefore be preferred that these purchasing activities are made with minimum effort (e.g. Park et al. 1989: 422). Grocery purchasing is understood as buying behaviour with low involvement decisions which are made frequently, at regular intervals and, due to the low cost, with low information search and low risk. First of all, buying groceries is a necessary task (Raijas and Tuunainen 2001). It is often perceived as a constraint and the pleasure dimension is


limited. As well as being necessary, grocery products are low-involvement purchases made with minimum effort (Park, Iyer, and Smith 1989; Verhoef and Langerak 2001). People like to spend as less time as possible and as this behaviour is fairly routine, they will not use their cognitive resources, instead will go with impulse, reviews from people around them as well as previous experiences to help them with their decision making. As a result, the grocery-buying patterns of most customers are fairly stable (Raijas and Tuunainen 2001) and these habits are very hard to change. As well as convenience products, grocery products can also be considered as experience products (Dandouau 2001). All the customers like to touch and feel the product, i.e. the product touch point has to be established before they buy a product. Therefore, the products evaluation is mainly undertaken in front of the shelves in the store. A single grocery product may not be suitable for an Internet purchase as the distribution and transaction cost of one grocery item is considerable as a proportion of the price paid (Peterson, Balasubramanian, and Bronnenberg 1997). Only large bundles of groceries may be amenable to Internet-based transactions. It means that the consumer has to make many clicks for cheap items, making the purchase process more difficult compared to other types of products where only a few clicks are needed. According to Raijas (2002), these specificities make groceries one of the most difficult objects of trade for electronic commerce. Consequently, specifically studying online grocery shopping is important as research on other types of Internet shopping cannot be applied to the food sector.


Purchasing Online is one of the fastest growing forms of trade but then when e-commerce has gained popularity at a fairly impressive speed in the B2B area, the share of total consumer spending carried out via online transactions is still modest. Among the companies who have tried to sell their products to the customer online, a significantly large number run huge deficits and several have even had to close down. The difficulties plaguing online retailers have been more significant in connection with the sale of groceries and other products for daily use. There has been a number of attempts to establish online retail shops, but with limited success, nothing that can be considered a breakthrough. This is in spite of the fact that grocery purchases account for a large proportion of consumer spending. Some prominent American internet-based supermarket failures are Webvan, Streamline, Homegrocer, Homeruns and Shoplink (Tanskanen et al., 2002). Also in Denmark, supermarkets have closed down their internet-based grocery shops, e.g. ISO, Favr/SuperBest and ISS. One of the most common difficulties that internet grocery retailers have faced is that the sales tend to fall short of expectations and thus it is relevant to look at the consumer and find out the reason as to why they use or do not use the internet.
Grocery retailers and the Internet: status and questions What are the drivers to the development of click and mortar strategies? Could it be a stagnation of traditional retail formats? Consumers are increasingly looking for ways to save time and to free up constraints. There is a general desire for more convenience (Seth and Randall 2005). From this perspective, it might be an interesting option to increase pleasure to consumers by limiting compulsory, repetitive and physically painful tasks of food shopping. In this context, there is an opportunity for food retail companies to create a competitive advantage by adding a new channel (Bevan and Murphy 2001).

7|Page Can online grocery shopping develop into a valuable service for consumers? This question may be investigated by examining the factors explaining consumer perceptions of both offline and online retail formats. Previous studies have shown that among the geographic and socio-demographic factors, household size and the presence of children are found to be common explanatory variables for patterns of use of hypermarkets and cyber markets (Bawa and Ghosh 1999). The area of residence is another key variable. Those who live in the city or the suburbs have more choice in stores and can adopt a multi-loyalty store formats attitude. The distance to travel to the shop is also decisive: the proximity of stores determines the frequency of visits (Fox, Montgomery, and Lodish 2004; Bawa and Ghosh 1999) and the level of loyalty to a grocery store (McGoldrick and Andre 1997). Berkowitz, Walton, and Walker (1979) found that in-home shoppers tended to live more than a ten minute drive away from the nearest grocery store. Finally the socio-professional category gives us information on the budget the consumer can allocate for food and indicates whether they would be willing to pay a fee for in-home delivery or drive-in services. Psychographic factors such as the food-related lifestyle of a customer are also believed to influence adoption of Internet shopping (Grunert and Ramus 2005). Behavioural factors such as familiarity, competence in use (Hoffman and Novak 1996; Helme-Guizon 2001; Clark and Wright 2007) and trust of the Internet (Bevan and Murphy 2001) are primary factors to take into account in order to understand the appropriation of new forms of online retailing. Donthu and Garcia (1999) found out that internet shoppers are older and make more money than noninternet shoppers. They are also more innovative, impulsive, convenience seeking and less risk averse. Bellman et al. (1999) have used a Wharton Forum panel consisting of 10,180 people to characterize

8|Page internet shoppers regarding their internet habits based on number of daily mails, time they spend online and other mainly behavioral aspects of internet use. George (2004) has investigated 193 college students using theory of planned behavior (TPB) in a survey of general online purchasing behavior and found that respondents that have little concern about privacy and trustworthiness of the internet and believe in their own abilities regarding internet purchasing are more likely to use the internet for purchasing. They confirmed the robustness of TPB, but they only looked at privacy and trustworthiness as antecedents to attitude towards internet purchasing, and the special case of online grocery shopping is not considered in the survey. Morganosky and Cude (2000) were the first to look specifically at the reasons for consumers to shop online in the grocery area, and their survey of 243 respondents from the USA showed that convenience and time saved were the primary reasons for shopping online. An important limitation of this study is that it only focused on users of online grocery shopping, i.e. it only included consumers with a favorable attitude towards internet shopping. Raijas and Tuunainen (2001) did include a small sample of 44 non-users (and 47 users) in their investigation of critical factors in Finland and they found time saving and trust in the company as being important for the decision to shop online. [Ramus and Nielsen]

Theoretical approach One of the most widely used social psychology theories about the way in which perceptions influence actions is Ajzens TPB (Ajzen, 1985, 1988). Figure 1 is an illustration of TPB. The desire to perform an action is caused by three constructs: 1) Attitude towards the action: It is the valence of the action for the potential actor, i.e. whether and to which extent the action is regarded as positive or negative. Attitude is in turn determined by a persons beliefs about the expected outcome of a given behavior



Subjective norm: it refers to how the potential consumer believes others around him will react to performing the action, i.e. positively or negatively. Subjective norm is determined by normative beliefs that the individual holds about the behavior expected by relevant referent individuals.

3) Perceived behavioral control: It refers to a persons ability to perform a given behavior.

The TPB has been widely used in analyzing consumer behavior (East, 1993; Taylor and Todd, 1995; Bredahl, 2001; Bredahl and Grunert, 1997; Conner, 1993; Dennison and Shepherd, 1995; Povey et al., 2000; Scholderer and Grunert, 2001; Thompson and Thompson, 1996). In relation to internet behavior, it has been applied in order to explain intentions to learn how to use the internet (Klobas and Clyde, 2000), adoption of virtual banking (Liao et al., 1999).

So when focus group interviews were carried out with respect to the TPB (the planned behavior), certain Outcome beliefs were identified. They were:

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(1) convenience of shopping; (2) range of available products, information about products; (3) enjoyment, fun of shopping; (4) social aspects of shopping; (5) personal service; (6) price, bargains, costs; and (7) Technical systems, home page. Studies have shown that the non-users of the EGS prefer a conventional grocery store instead of an electronic one. One of the most important factors in choosing an electronic grocery store instead of a conventional one was the avoidance of product picking and delivery.

The amount of purchases varied between the users and non-users. The average amount spent by the users of the Electronic Grocery System was higher than that of the non-users,

What was seen is that products of all kinds were purchased in the EGS by the users and that included fresh as well as frozen products. The preservation of perishable and frozen products requiring special temperatures during transportation is often cited as one of the most critical phases of electronic grocery trade. [Ramus, Nielson]

The users of the Electronic Grocery System tend to concentrate their purchases online. They buy a lot of dry products whose quality the customer may be certain of. It seems that the

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customers tend to use an EGS to buy the products that are not prone to spoil and that are heavy to carry.

Some of the problems with electronic grocery shopping Products are dif. cult to find Prices are higher than in a conventional store Product quality cannot be verified Too little information about the products Narrower assortment than in a conventional store Minor personal service or no service at all

The time spent during shopping and the money used for transportation is accepted costs that are not taken into account when a consumer is calculating the total cost of his shopping basket. The most important customers in an electronic grocery store are those who value their free time. These families are wealthier than average and their demand for groceries are large. When choosing an EGS a consumer expects to save time and this includes the time that is taken to go to the grocery shop, choose the products and wait for payment etc. Ease of ordering and finding the products are components of time savings.

For an electronic grocery store to compete with a conventional one, an essential requirement is to develop the customers trust. Furthermore, the value added by online grocery shopping when compared to the conventional form of shopping has to be obvious for a consumer.

12 | P a g e Online shopping and spatial consumer behaviour The domain of spatial consumer behaviour is affected by the changes in online shopping and therefore requires revisiting. Gravitation asserts that distance should be minimized and the size of the body should be maximized to enhance the attraction (Newton 1686). This theory is expressed in the Law of Retail Gravitation (Reilly 1931) and the Huff model (1964). The Multiplicative Competitive Interaction (MCI) model (Nakanishi and Cooper 1974) which is considered both a generalization of the Huff model and an attraction model (Cooper and Nakanishi 1988) can be a-spatialised if distance is not perceived as a determinant attraction variable depending on the product sold (Cliquet 1995). The increasing distance consumers drive to go to work entails new spatial consumer behaviours as well. Gravity models continue to be used by todays practitioners (Rogers 2003) especially through geomarketing software (Latour and Le Floch 2001). Research papers continue to be published using gravity or spatial attraction models (Baray and Cliquet 2007; DeSarbo et al. 2002).However these models have been questioned given the increase in consumer mobility (Golledge and Stimson 1997). A gravity model manages a stock of clientele but when mobility increases; the idea of flow of clientele also increases (Cliquet 1997). And what about the Internet? On the one hand, a retailer is interested in increasing this flow of consumers even though some dwell further away than its regular customers. On the other hand, this retailer is wondering whether ICT is responsible for changes on the distance consumers are ready to drive to a store. Lenz and Nobis (2007) show recently how ICT can modify the way people manage their time and space. Concurrently to the research, retailers are trying to implement new services to respond to these new shopping modes by mixing the Internet and stores. The various order and delivery options, among which are the home delivery and the drive-in systems are presented in the following figure.

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(1) What is the market for online retail of groceries? (2) What are the factors impacting purchase decisions online? (3) What are the drivers and inhibitors for buying of products via internet? (4) Are design elements of website (layout etc.) responsible in influencing buyers decision?


Step 1: Secondary data collection

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Step 2: Qualitative Research Direct procedure 1. Focus group Interview: Conduct 2-3 focus group interviews, mainly females who have bought groceries before, who love cooking and are married etc. the groups need to be diverse in terms of age, income education etc. One group may include females above 35 years of age and all working; another may include working women in the age group of 25-35 years whereas the last group may include women who are mainly housewives. The reason for choosing women is because when it comes to groceries they are generally the decision makers. 2. Depth interview: The idea is to interview people I know for e.g. relatives, sisters, friends mother and sisters and ask them about online grocery retail and try and find out about their perception on online grocery, get cues as to how they view this thing etc. The idea would be to capture perceptions.

Indirect procedure: o Projective techniques: We visit malls, market place, and other retail stores and ask consumers about online grocery retails using the various projective techniques without letting them know that a research is being conducted thus getting cues and various perceptions about online grocery retail.

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Step 3: Questionnaire Design: A questionnaire focussed on finding the drivers and barriers for online grocery retail and whether people will prefer online grocery retailing here in INDIA. Specific relationship to be tested: Market for online retail of groceries Factors impacting purchase decisions Selection of products to be sold via internet Design elements of website (layout etc.) Supply chain design

Step 4: Data analysis and Interpretation using SPSS. Do a factor analysis and use other tools to highlight the main factors affecting the online grocery retail


It is a trend that is catching up however again if one has to think it is a concept ahead of its time and needs more awareness, online literacy and time to penetrate. Multibrand retail in India is bleeding with all the major players reeling under losses and technological improvements need to be made. The idea is to check what are the factors resulting in these losses and in the current scenario can the online grocery retailing concept be viable to be launched in India. If so, how? Various factors like logistics and supply chain factors along with distribution and delivering cost need to be considered so that the business becomes viable. The model for research aims to find

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out answers to the following questions which might for the base for doing a pilot analysis of the entire concept

Online questionnaires will not be the only solution as you do not who exactly is filling it up. Interviews of random people from housewives to working women have to be conducted as well as distribution of survey question papers to working women have to be carried out and a large sample size has to be considered in order to find out about the true factors

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