E-commerce Interim Report

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Business with Altitude: eCommerce Project - Interim Report
Key Objective: To determine the feasibility of an e-commerce and stock control service, which integrates social enterprises with conventional SMEs and sole traders and vice versa. For the purposes of this report, Alston Wholefoods has been used as the sample enterprise. The report demonstrates whilst there is great interest in setting up such a scheme both in the sample enterprise and among businesses generally, there is a lack of IT infrastructure and trained personnel to support the scheme. Many obstacles could be overcome with additional funding but this remains the main barrier. Many see the benefits of e-commerce going far beyond increasing sales. An online prescence can also be used as a marketing tool and an interface with customers. Five other key retailers and producers in Alston were interviewed for this report to determine general interest levels and feasibility. In the final report, a poll of cybermoor users and further discussions with businesses in Alston Moor could be conducted if required. Overview of Online Retail in the UK The British Retail Consortium reported that retail sales were up 3.9% on a like-for-like bases compared with March 2006, when sales had fallen 1.4%. Online retailing continues to enjoy above average growth. According to the ONS, the latest National Statistics figures record non-store online retailing as the highest growth sector for January to March 2007 at 2.6%. The ‘big four’ supermarkets are enjoying fast growth in online retailing. Online sales now represent 3% of Tesco’s total sales. Sample Enterprise: Alston Wholefoods Alston Wholefoods (AWF) is a co-operative and has been running since 1996. It first opened as a cheese shop which expanded to include wholefoods and a wide variety of other products. There are currently 6 members and 3 workers who cover any additional hours required. As a small business, only one member of staff generally works any single day at the shop. Each member has certain responsibilities for stock takes, ordering and taking deliveries. As only one member of staff has to manage the shop, attend customers and fulfil their other responsibilites time is extremely pressured.

Below is an overview of key facts:

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Annual turnover in 2005/6 was £80,000 - the same as the previous year with a profit of £200 for each year. Around 70% of this figure is spent on stock alone. The shop sells a wide range of products, currently with over 1500 product lines. The main categories are summarised in the following section. AWF sources locally produced cheeses as well as traditional names. Around 20 cheeses are also in stock with a futher 30 bought in on a rolling basis. This is the shop’s most successful area of business. The shop has started to implement new initiatives such as “Cheese of the week”. This is heavily promoted in and outside the shop, and is also sampled at the Moody Baker on Saturdays. The shop also samples Moody Baker products. Alston Wholefoods runs a special order service meaning that any product supplied from SUMA can be sourced. Customers can also order items in bulk to receive a 10% discount sometimes undercutting larger supermarket chains and the Co-op. AWF does not currently have a website or an accurate stock management system. Like other businesses in Alston, visitors bring additional sales in the summer months, but during the winter the shop relies on a small local customer base.

Product Overview The table below outlines major product categories and suppliers. Product Category Supplier/s ----------------------------------------------------------------------------------------------------------Beans, grains, pulses, pasta SUMA Bread, cakes, pastry SUMA, Juniper, Moordale Foods Moody Baker Cheese Bruce Oliver, Thornby Moor Dairy, Hunter House Farm, Slack House Chilled and frozen goods SUMA, Juniper Coffee, tea, hot drinks SUMA, Juniper Condiments SUMA, Juniper Dried fruit, nuts SUMA, Juniper Flours, baking sundries SUMA, Juniper, The Watermill Gifts Moorland Candles, Cloth bags Herbs and spices SUMA Household, hygiene, remedies SUMA Meditteranean cuisine SUMA, Juniper Selected Japanese, Indian, Chinese lines SUMA, Juniper Snacks, chocolate SUMA, Juniper Sugars, jams, honey SUMA, Juniper, Chain Bridge Nook Farm, Wild & Fruitful The products are sold with a standard 33% mark up in most cases although bagged down goods carry a 50% mark up. All existing products could in theory be sold online but by concentrating on local products, and bulk orders, this would put Alston Wholefoods in a unique position. For example, Alston Wholefoods is the only retail outlet for Hunter

House Farm cheeses. These cheeses are extremely high quality and are only otherwise availalbe at farmer’s markets.

1. Products Suitable for Online Retail By opting to promote local produce and certain bagged down goods, Alston Wholefoods could position itself as a centre for local producers in the area with a strong selection of good value wholefoods. Customers could use an e-commerce site to make their special orders ensuring greater discounts for bulk orders. The table below gives an average price across the most suitable categories. Product Category Average wholesale price Average RRP per kg / per item per kg / per item ----------------------------------------------------------------------------------------------------------Beans £0.90 £1.80 Grains £0.98 £1.96 Pulses £0.75 £1.50 Bread £1.00 £2.00 Cheese £1.20 per 100g £1.60 per 100g Dried fruit £0.75 per 250g £1.50 per 250g Nuts £0.65 per 125g £1.30 per 250g Flours £1.20 per 500g £1.60 per 500g Gifts - candles £0.60 £0.90 Gifts - bags £1.99 £2.99 Honey - Nook Farm Honey £2.20 £3.50 Jams - Wild & Fruitful £1.45 £2.20 An estimate of a potential in increased volume in sales is hard to predict. According to information from major supermarket websites, online sales represent from 0.5% to 3% of total sales. Obviously comparisons to large supermarkets do not take into account factors affecting such a small enterprise as Alston Wholefoods but at least provide a benchmark. In a remote area such as Alston, one would assume the figure could be much higher once the service was established. However if a take up of only 3% is assumed, the amount of profit gained through online sales would be small. The table below shows the sales and profit for five product lines from March 2007, based on order lists for that period. March is a fairly busy time of year with half term and the run up to Easter.

Product

Average weekly RRP Profit sales sales ____________________________________________________________________ Cereals - Porridge oats 5kg £6.60 £3.30 Grains - Basmati Rice 2kg £3.84 £1.92 Cheese - Hunter House 1.5kg £27.00 £18.00 Honey - Nook Farm 8 jars £28.00 £10.40 Jam - Wild & Fruitful 10 jars £22.00 £7.50 ____________________________________________________________________ Total £87.44 £41.12 ____________________________________________________________________ Using the 3% online sales figure, a profit of £1.23 would be generated across these categories. This illustrates the low level of profit gained. If you look at a month’s turnover for example, 3% looks a more healthy increase, but once running costs and wages are taken into account its hard to see how the operation would generate increased profit. For example: Turnover for March was approximately £5,550 - an increase of 3% represents an increase of £165 in turnover. Stock accounts for around 70% of the turnover, taking the increase down to just over £45. Additional hours of wages required would be at least one hour per week taking the profit figure down to £22.50 at best, not taking into account other running costs or delivery charges. An e-commerce operation would have a range of other benefits over and above increasing sales. The website presence would raise awareness of Alston Wholefoods, could be used as a marketing tool, an interface with customers, and would be a way of collaborating with other local businesses. These factors alone would deem the project successful even if it just managed to break even. 2. Identify existing stock control system and modifications required to meet objectives. The stock control system relies heavily on one member of staff having years of experience and knowing what stock is required. There is an XL spreadsheet which keeps records of orders placed. A stock take of the main SUMA products in conducted roughly every Sunday, but a lack of time means that this data is often incomplete. The ordering process ends up being rather random, and it isn’t clear as to which lines are consistently doing well.

Deliveries from Suma arrive in the shop every Thursday, and from Juniper every two weeks on a Friday. A print out of each order is given to the member of staff on that day and they then check it off with the invoice. Goods are priced up and stored, special orders are put to one side for individual customers. The process is extremely time consuming and as only one person manages the shop on any day, with the exception of particularly busy times, frequent mistakes cause errors in pricing and the special order system. The quickest most accurate system would be have a computerised bar code system for all products sold in the shop.

3. Identify barriers to selling these products on-line at Alston Wholefoods Inaccurate stock control system The current stock control system cannot be carried out accurately each week due to the time pressures and with such a range of products. In order to determine how best to proceed with an online retail operation, a computerised system would be required. This would give accurate data concerning product sales and enable tracking of online orders. The shop cannot undertake buying this equipment at this time. Lack of internet site As the wholefood shop doesn’t currently have a web site, it could not set up an ecommerce operation. A web based system would be the ideal as other businesses could in

theory log in to an internet based system which would host all participating shop products. A template for an Alston Wholefoods website has been drawn up but without additional funding it cannot progress. The shop is promoted on the Cybermoor website but relies on passing trade and its relatively small customer base for sales. Time and affordability As only one member of staff runs the shop, time required to prepare goods for delivery would be hard to manage depending on service take up. Additional wages would add to the running costs of the operation. Pricing Due to amounts bought, and trading trends among the countries of origin, prices of bagged down goods such as grains, pulses and nuts vary greatly depending on the amounts bought and trading trends in the countries of origin. This makes predicting profitability difficult and can put off customers. Delivery system The shop doesn’t own a van but most members have transport. Again time precludes most members from carrying out deliveries. The cost of using delivery companies like DHL are prohibitive. Chilled and frozen goods would have to be transported according to government guidelines, which again would add to the time and cost of the operation. A community based devliery system along existing routes could be a solution. See section 4 on how this could provide the framework for a box scheme. IT and Personnel Apart from one Alston Wholefoods Co-operative member, the other members of staff have low levels of IT skill and or interest in the internet. This could potentially be a barrier when trying to gain buy-in from the Co-operative as a whole although most are open to ideas which further the business. 4. Identify other SMEs / social enterprises in Alston which would be interested collaborating in the project and find out how they could be involved. A short set of interviews was conducted among a cross section of retailers in Alston. Participants were as follows: Alston Fruit and Veg., the Flower shop, newspaper shop, Moody Baker and Haldon’s Fudge Shop. Most local businesses have the same set of challenges largely concerning the huge seasonal variations in business and the need to find ways to expand business during leaner winter months. Whilst all are in favour of having an online retail system except for the newspaper shop, a range of significant barriers to the system were cited. They can be summarised as follows: Lack of computerised stock control system Lack of website Lack of man hours to manage the process The main benefits of such a system are perceived as follows:

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A website could enable increased product sales and ultimately pay for itself. A website could offer added marketing opportunities and increased profile for all involved. A website could potentially expand businesses beyond existing delivery routes and provide the opportunity to break into new markets. The Moody Baker, Flower Shop and Fruit and Veg shop all currently run delivery services. They are all positive in theory about linking up delivery routes and taking additional products to customers. The most popular idea was a box scheme which could pull together all retailers and producers in Alston. Boxes could be delivered to customers along existing delivery routes initally. Such a scheme would suit all age ranges who either haven’t got time to go shopping or find transport difficult. An additional promotional box scheme could also be rolled out to local Hotels and B&Bs as a way of promoting local businesses to visitors and to encourage them to come and shop in Alston. The box scheme might be a good way to test out how businesses could work together to deliver to customers in the first instance.

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