Online Grocery Operations in Omni-channel Retailing: Opportunities and Challenges
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Online grocery has grown rapidly in different parts of the world over the last two decades. However, it is still not clear whether online grocery retailing can be profitable in the long run. Grocery retail is a low margin, high-cost business. Picking and delivering an online grocery order is labor intensive and costly. The delivery fee typically does not cover all the fulfilment costs. Many grocery retailers are making substantial investments to develop an online sales channel next to the traditional stores. With the emergence of omnichannel grocery retail, customers are provided with a seamless experience across online and offline channels. There are many synergies that exist between online and offline distribution, which if utilized properly can lead to significant cost savings to the retailer.
In this thesis we explore capacity sharing strategies between the vehicles of store replenishment and online fulfilment in buy-online-pick-up-in-store omni-channel model. Through an extensive numerical study, we show that significant savings in distribution costs can be achieved by sharing capacity of vehicles across two channels. Alongside the planning aspects, we also study the interaction between the online and store channel in an omni-channel setting. Our results show that online profitability increases with household density and decreases with store density. We also find that that an increase in the popularity of the online channel could substantially impact the current dynamics to the point where it would be profitable to reduce the number of physical stores.