Abstract
The purpose of this case study is to let the readers identify the key success factors of the French grocery retail companies’ drive-through model. A case study approach is used to describe clearly issues confronting Intermarché, the third largest French grocery retail company, to the important and fast drive-in model development. The large French grocery retailers are investing heavily in the ‘click and drive’ format in order to avoid having to make home deliveries and bear the substantial costs associated with the ‘last mile’. Investing in selected drive-in locations is a cheaper way for them to expand their area of coverage than investing in new outlets. But they still have to deal with a new and difficult format, which presents a number of challenges from the strategic, logistic and marketing points of view. This case study provides an insight into the success of the grocery ‘click and drive’ (or drive—or drive-in) model developed by French grocery retail companies and allows understanding the basis of their competitive advantages. It can also help large grocery retailers to achieve their development objectives and counter the stagnation of traditional retail formats in Western Europe.
Case Itself
It is Tuesday morning in the office of the Internet department of Intermarché (see Exhibit 3) in Bondoufle, in the south of the Paris Region. Sophie Ménétrier, Head of the Internet Department, is talking to François Guliano, member and owner of a supermarket who is trying to decide whether or not to launch an e-commerce project in addition to the physical sales operation he runs from his store.
François Guliano: ‘I recognise that with e-commerce and a pick-and-go outlet I would be able to recruit new clients in my trade area, increase my turnover and help to modernize the image of our outlets. But I would be faced with stock management problems and with cannibalisation.’
Sophie Ménétrier: ‘Stores that keep a close eye on their product ranges do not have this kind of problem.’
François Guliano: ‘I also have the impression that the product ranges sold via drive.intermarché.com and advertising are not entirely adapted to my online clientele.’
Sophie Ménétrier: ‘We are aware that we still have progress to make in this area and we are working on it.’
François Guliano: ‘Will I have to choose between the home delivery and drive-through services, or will I have to offer both?’
Sophie Ménétrier: ‘We want to accelerate the development of the drive-through service. An increasing number of French households get in their car, do their ‘fun’ shopping in a store and do their routine shopping in a drive-through. As far as you are concerned, we will begin by establishing a basic preliminary plan, estimating the potential of your point of sale by comparing data from online-buyers of food and non-food products. Measuring the potential of your store will help us determine whether it fits into the cottage industry category (10–15 orders per week) or the industrial category (400–500 orders per month for store picking outlets for which we are obliged to industrialise by introducing an automatic restocking system). In terms of developing e-commerce, geo-marketing is crucial and it should be borne in mind that the first to arrive in a given trade area will be at an advantage. You have to be the first member to offer the service, otherwise it will be difficult to make any money out of the business.’
The entire internet team helps to reposition and improve the efficiency of the predominantly food-based brand on the retail market.
The French Grocery Cyber-market
In 2012, turnover in the e-commerce sector in France increased by 19 per cent to 45 billion euros. But the market is approaching maturity and becoming increasingly competitive. E-commerce is not dominated by ‘pure players’. Brands that have decided to implement a multichannel approach and actors positioned on a ‘market place’—where cyber-merchants are able to drain substantial traffic from other sites—and even retail firms with a large client base also play an important role in the online market.
E-commerce saves time for consumers (refer Exhibit 1 and Table 6). Their average spend is 2–3 times larger than that in traditional formats. But at Christmas and Easter, and when children return to school in September after the summer holidays, many shoppers prefer to visit a physical store (see Table 7). In effect, there are no websites that enable prospective customers to physically examine 50 satchels and return them if they do not come up to scratch. December is not a big month for e-commerce because it is characterized by fun shopping. Consumers want to see their Yule log before buying it. E-commerce does not replace physical outlets; what it does do is giving consumers more time to shop.
Setting up an online sales website is less expensive in terms of investment than opening and running a physical point of sale (taxes, salaries, running costs) and there is no need to acquire an opening permit or a building permit. Online sales facilitate the task of introducing new products, follow the activities of definitively identified customers, find out which products they buy most often and monitor the impact of advertising on the website or via other channels (TV, press, etc.).
Estimated Distribution and Growth of Intermarché Turnover in Per cent as of End 2012
Downstream Logistical Delivery Models
There are two models (see Table 1) home delivery and delivery to a point outside the home.
Home delivery
Paradoxically, although it is in large urban zones that the potential for home delivery is the greatest, it is also in such zones that the model is confronted with its limits due to the impossibility of predicting traffic flows and, consequently, delivery times. Leclerc, the second largest French retail chain after Carrefour, has not developed home delivery because, according to Michel Edouard Leclerc, ‘home delivery is incompatible with low prices (Yrjola, 2003). If you charge low prices, you’ll lose money. Home delivery presupposes a clientele with a lot of money to spend and a certain indifference to sales prices.’
Delivery to a point outside the home includes two distinct services: Drive-through outlets (click and drive) and pick-and-go (click and collect)
Pick-and-go: The customer drives or walks or takes the bus to the outlet, goes to reception, collects his purchases and leaves. Setting up a pick-and-go facility introduces stores to the concept of remote sales and can serve as a springboard to the click-and-drive model.
Drive-in: The customer drives to the outlet, parks up and waits for his purchases to be delivered to the vehicle. Generally speaking, purchases are delivered to the boot of the car in less than 5 min. Enthusiasm for drive-in services (refer Exhibit 2) is not confined to the retail grocery sector. Companies in the toy market, as well as a number of agricultural associations are testing the model. With drive-ins, the constraints of downstream logistics are transferred to the consumer, as is also the case in the traditional model of supermarkets. After a number of years spent making small-scale adjustments, all the major brands in the sector have decided to deploy this service (see Table 2). The drive-through model makes it possible to reach areas not covered by traditional home delivery networks. But some Parisian stores have only three parking places and are too small to be transformed into drive-in services. According to a study carried out by the Roland Berger consultancy firm in 2013, 15 per cent of consumers use drive-ins, while one out of three of them envisage doing so more often. The turnover for this channel overtook that of the online home delivery market in 2011.
Following in the footsteps of the French grocery retail chains Leclerc and Auchan, brands opt either for solo (independent) drive-ins—as a ‘weapon of penetration’—or drive-throughs attached to a store—as a ‘weapon of retention’. Solo drive-ins have isolated dedicated warehouses. Set up in new trade zones, they contribute to conquering market share.
Number of Drive-throughs (Including Pick-and-Goes) Per French Retail Company
The Intermarché Group offers three models of downstream delivery: home delivery, pick-and-go (click and collect) and drive-in (click and drive).
Drive.intermarché.com
Members Have Opted for the ‘Store Picking’ Logistic Model and Target Several Different Client Typologies
On April 28, 2004 the Group launched its sales website, having chosen the store picking model due to its profitability (Durand, 2010; Fernie, Sparks & McKinnon, 2010). It is hard to imagine this system being applied in a large supermarket because it would involve too much time in terms of preparation, which would directly affect the profitability of the drive-in service. But Intermarché stores range from 1,200 m2 to 6,000 m2, which enabled us to go for this option.
The heart of drive.intermarché.com’s market are women in employment, aged between 25 and 44, married or part of a couple, with children, and from an above average socio-professional category. There is no minimum order. Customers enter their post code and are directed to the nearest outlet or drive-through. We don’t offer online payment, which enables us to strike up a real relationship with the customers when the delivery is made. For example, customers can reject one or more items ordered online. This reassures Internet users. Because of its proximity to customers (one point of sale every 18 kilometres), Intermarché has been able to develop a professional clientele—crèches, town halls, sports associations, campsites and leisure centres use Intermarché (and Leclerc) as a matter of course because their stores are not too big and because they are able to offer payment terms that integrated and centralised hypermarkets can’t compete with. Although, on the website, we have set up a home page, an invoicing system and an assortment for professionals, Business to Business isn’t a priority for us. The Intermarché website is a common base for all points of sale. It’s the company’s first shared tool administrated from head office. In all other kinds of relations we content ourselves with making suggestions to our independent members; for example, recruiting smart, well-spoken delivery personnel with good people skills.
Financial Elements
Between 2007 and 2012 we increased our e-commerce turnover by a factor of 16, generating a total of euro 80 million. E-commerce has a fixed cost because it involves purchasing or renting an IT tool and a physical pick up installation. It’s particularly attractive for managers whose stores have reached maturity and who want to find a way of increasing their turnover. A standard drive-through concept (car park, canopy, lighting, music speakers, an illuminated sign for the night-time, two kiosks) costs around euro 150,000. To set up a drive-through with no kiosks but with an intercom where customers pay on delivery would cost euro 50,000.
Client Relations
With the Intermarché loyalty card (and the loyalty cards of the other networks of independents retailers), you can accumulate money and accumulate points, but those points have to be used in the store that issued the card. The card is national for discounts and local for points. That’s the first concern. The second concern is an IT problem linked to product flow. The loyalty card system is old and the e-commerce system is different to it. Back when it was first designed, departments running the two services did not talk to one another. The fact that the databases were not merged is an aberration. The loyalty cards of the Auchan, Carrefour and Leclerc French retail groups can be used both in stores and on the Internet.
E-marketing
Product/assortment policy
Customers must be provided with a large assortment (see Table 3). We still model our assortment on the stores, but we are thinking about developing a cross-channel policy encompassing distinct, yet complementary in-store and e-commerce assortments. For example, much more has been done to develop wine sales in-store (fine wine tastings, promotional offers, etc.) than in e-commerce, where it represents no more than an addition to the regular offer.
Breadth of the Assortment
We generally propose three alternatives for out of stock products, corresponding to three levels of priority. While nappies, baby milk, Coke and Nutella are irreplaceable, customers will accept substitutes or equivalent brands of ham. We have the same brand policy, the same assortment on the website. We propose fresh products, particularly individual vegetables. Mineral water, milk, washing powder and toilet paper are the items most frequently purchased via the click-and-drive model; fruit and vegetables, fresh meat and baby products are sold considerably less well at competitive prices (see Table 4).
Price Positioning
The Website
Sophie adds, ‘The website doesn’t provide information about “consume by” dates for fresh products, but it does have a section on sustainable development. The current version of the website tries to push impulse buying to increase the size of the average spend and ensure that the service is profitable.’
The communication policy
Communication: ‘The communication policy is developed by the internet department at Intermarché’s headquarter. The department manages online communication (renting space, games launched nationally, etc.). We provide stores with leaflets describing the website. We send them offline and online communication tools (offline tools include bus stop posters, press inserts, formula mail shots, etc.; while online communication tools include banners and formula email shots, etc.). The store then prints the posters, and reserves space for banners at the Group’s local agency or the agency of its choosing. We also need to communicate more within the Group.’
Promotion: ‘Intermarché’s IT system does not make it possible for drive-throughs to organise promotions, even though the competition does run promotions. But, thanks to improvements made to its internet site, the Group is now able to communicate with its customers in a more personalised way.’
Case Analysis
Strategic Objectives Underpinning the Group’s Decision to Develop the Click-and-Drive (Drive-through) Model
Improving daily life by fighting against everything, that is, expensive, even on the Internet.
Modernizing the image of the Group’s brands (Rieuner & Volle, 2002).
Increasing market share and turnover.
Combined (Consolidated) SWOT Analysis
Springboard (strength and opportunity): the absence of a minimum order price encourages consumers to change their buying habits.
Bulwark (strength and threat): the choice of store picking reduces Intermarché’s exposure to the financial risk inherent in the model.
Breach (strength and weakness): the lack of promotions encourages competitors who possess more efficient IT systems.
Obstacle (weakness and opportunity): the fact that the databases are not merged represents an obstacle to the development of a targeted approach to multichannel communication.
Recommendations to Sophie Ménétrier to Help Her Develop the Drive-through Channel at Intermarché
One hundred and twenty international student groups studied the case and proposed five main recommendations:
Accelerate the development of the click-and-drive model in order to take advantage of the vagueness of the legislation governing this area; get there first to guarantee a commercial advantage. Invest in an IT system that makes it possible to merge in-store and internet databases using information gleaned from loyalty cards in order to develop targeted promotional offers. Ensure that delivery personnel are aware of the importance of promoting the Group’s image. Communicate in store about the advantages of the click-and-drive model. Guarantee that food products are fresh.
Click and Drive: A Few Theoretical Contributions
A number of authors have studied the advantages and development of the service.
While consumers like the idea of time saving and the reduction of physical effort associated with online sales of all kinds, click and drive has a number of advantages in comparison to home delivery: ‘drive-ins offer their adepts a new way of rationalizing purchases and freeing themselves from the constraints of delivery times which mean that they have to be at home at a certain time of the day. The approach also avoids delivery costs and frees up time that can be used for other activities’ (Heitz, Douard & Cliquet, 2011). Furthermore, click and drive services offer consumers the chance to combine their shopping trips with other daily activities such as travel to the workplace (Schenk, Löffler & Rauh, 2007).
Drive-ins may have different fulfilment systems: most independent (‘solo’) drive-ins are composed of a purpose-built warehouse and a pickup point. ‘Attached’ drive-ins may have a dedicated picking facility co-located with a store (supermarket or hypermarket), similar to the ‘solo’ drive-in model, or they may offer store-based fulfilment (Durand, 2010; Fernie et al., 2010). For grocery products, picking up the items oneself makes it easier to organize one’s time, and drive-in outlets provide e-buyers who dislike the fact that Internet prices are higher with both flexibility and convenience. Consequently, encouraging e-buyers to collect their purchases from a nearby pick-up point has a number of advantages, not least financial. Non-home delivery reduces logistical costs by up to 70 per cent (Yrjola, 2003).
The main advantages of the store-based fulfilment model are as follows (Fernie et al., 2010): it minimizes speculative investment; it improves the utilization of existing assets and resources; and it makes it possible to achieve a rapid rate of geographical expansion. On the negative side, the model can impair the standard of service for customers, who are obliged to rely on retailers to make suitable substitutions. And conflicts between conventional and online retailing are likely to emerge at the front end of stores and to intensify as the volume of online sales increases.
Purpose built fulfilment centres on separate sites or co-located with conventional stores (supermarket or hypermarket) offer a number of logistical advantages. Consumers can check product availability and the dedicated order picking function is more rapid and efficient (Fernie et al., 2010).
Key Success Factors (KSFs) (see Table 5) are generally defined as strategic factors that can be influenced by management, a task in which managers must excel in order to improve their firm’s competitive position (Hofer & Shendel, 1978; Johnson & Scholes, 2002).
Key Success Factors of the Click-and-Drive Model in the French Ordinary Consumer Goods Market
Exhibit 1: The Characteristics of Drive-through Clients
Customer Comments
Motivations and Constraints in Purchasing
In terms of its sales offer, drive-throughs compete with hard discount outlets and reduce the likelihood of customers making impulse buys.
Drive-through customers spend twice as much on their basket as customers visiting physical stores. According to a survey of 983 customers in the west of France carried out by the Parabellum consultancy firm in late 2010, and based on the results gathered in our interviews, drive-through users live no more than 15 minutes away from the point of sale they use. Fifty-one per cent of them make the journey to the drive-through from home, 49 per cent of them from work (Schenk et al., 2007).
Exhibit 2: ‘Drive-through’ Strategy
Website Ergonomics
Some websites include ideas for shopping lists or the possibility of typing out shopping lists in the same way as one would on a piece of paper.
The Service
In most cases, two hours after placing their orders via Internet, customers can go to the drive-through pick-up point and have their purchases delivered to their car boot. If everything goes well, they will be there for no more than 5 minutes. At worst, if the outlet does not have a dedicated car port, customers may have to wait a few minutes more. The ‘picker’ who prepares the order is trained to suggest two or three replacement products if an item ordered by the customer is out of stock.
The Economic Model
The choice of location is a vital factor in the economic success of the model due to the fact that a minimum annual turnover must be achieved in order to guarantee profitability (euro 3.5 million at Leclerc according to our estimates). According to an internal source, the Leclerc brand includes ‘specific conditions of purchase for suppliers whose products are chosen for the drive-through offer, without it being fundamental’. According to information gathered by the trade publication Rayon Boissons, this additional invoice discount accounts for between 0.5 per cent and 1 per cent of turnover at Leclerc.
The Kantar consulting firm estimates that the average annual turnover of an attached drive-through ranges from euro 2 million to euro 10 million, with return on investment achieved within four years and a pre-tax profit of up to 5 per cent of turnover, or, in other words, twice as much as the average hypermarket (large supermarket). But Jean Pierre Meunier, president of Intermarché, estimates that attached drive-throughs negatively impact the profitability of stores because it is the personnel who look for items in the aisles rather than customers. However, he does state that, at Intermarché, customers of the new service generate additional turnover.
The Promotional Offer
Promotions often have a substantial impact. Leclercdrive.fr offers instant discounts as well as Leclerc vouchers that can be used to boost the loyalty card point’s total. Some members focus on campaigns funded by suppliers in order to recruit new customers and encourage them to remain loyal.
The Limits of the Click-and-Drive Model
The service is reserved to consumers who are able to use internet effectively. In terms of the offer, even if the model makes it possible to recruit a new clientele, it cannibalizes between 10 per cent and 30 per cent of the hypermarket’s sales. Furthermore, spending the entire day shopping for other people is grindingly dull and leads to a high rate of staff turnover. To remedy this situation, distributors invest in ways of automating logistics and diversifying tasks (reception, cleaning, home deliveries, etc.). An automatic ‘gun’ is also used to keep a track on the stock situation, simultaneously flagging up out-of-stock items on the website.
The Future of Drive-throughs
There is substantial potential for growth. Drive-throughs can also be used as points of delivery for non-food items. Successful distributors may be those who play the multichannel complementarity card to cover all consumer needs at all times. According to Pierre Denis, director of the marketing site, ‘when the market reaches maturity, brands are obliged to develop differentiation strategies. The offer needs to be given meaning, there needs to be more commercial activity, the system has to be linked to the loyalty card system. The customers have to be recruited by solo drive-throughs which don’t enjoy the same kind of footfall as drive-throughs attached to stores’.
Exhibit 3: Intermarché
Intermarché points of sale are run by independent company directors (personal and financial investment). All of these directors are Intermarché members. They agree to respect three principles (low prices, proximity and reasonably sized outlets), and two fundamental values (entrepreneurship and solidarity). Members who respect ‘house policy’ are rewarded at the end of the year. The brand’s slogan is ‘At the service of low prices, independent company directors, citizens and the actors of your daily life’.
Members can, if they so desire, spend one-third of their working hours (two days a week, often Tuesdays and Wednesdays) working for the benefit of the Group. Working on a voluntary basis, the member is responsible for running a department (Internet, purchasing, quality control, etc.) in conjunction with an employee based at company headquarters. Members participate in board meetings and are involved in the Group’s strategic decisions.
130,000 employees.
3,000 independent directors.
4,070 points of sale in Europe (France, Belgium, Poland and Portugal) of which 3,464 are in France.
60 innovative production centres for meat, cured meats, mineral water, dairy products, baby nappies, vegetable conserves and maintenance products, as well as mussel beds and fish farms. Intermarché is the only French retail group to have developed so many production facilities. Intermarché factories produce 40 per cent of the company’s own brand products and also supply third parties; their turnover went up by 5.6 per cent in 2012.