Depot-based fulfillment is no longer generally considered a good model in online grocery retailing. Store picking is viewed as more cost-effective. But Asda’s announcement is not a sign of failure. The company only invested GBP4 million in the depots, and is now in a position to put up a serious challenge to Tesco with its revamped eCommerce operation.
Wal-Mart’s UK unit, Asda, will close its two online servicing depots.
Asda, the UK unit of US retail giant Wal-Mart, has said that it will shut the two depots that it currently uses to supply customers of its online retail service, Asda @t home. Instead, it will switch to a store-based system, where the goods being delivered are picked off a local supermarket’s shelves.
Internet groceries have a checkered history. Companies such as Webvan set up huge distribution centers with venture capital funding, and then discovered the overheads were too great compared to sales for there to be a realistic chance of ever making a profit. On a smaller scale, this was Asda @t home’s original model.
Asda’s archrival Tesco has had great success online, becoming the world’s largest online groceries retailer. Its key advantage was its store-based system, which cut overheads to a minimum, significantly reducing the amount of investment required. Throughout the industry, online supermarkets are switching to a store-based system. In the US, former Webvan rival Peapod now store-picks from its parent Ahold’s supermarkets.
However, it would be unwise to estimate Asda’s importance. Asda @t home was launched in 1999, with the two depots serving customers in southeastern England. But since then, it has expanded across the country based on a store-picking model. It already covers 8.4 million UK households, with plans to reach 14 million by the end of this year.
Globally, Wal-Mart has lagged some of its rivals in getting into eCommerce. However, Asda @t home looks like a good model for the chain to follow across the world. Closing the depots means writing off GBP4 million of investment – not a major loss. Having avoided the losses of being a trailblazer, Asda and its parent are now in a good position to pick the best eCommerce models and make them work.