This is the proposal to the imaginary food retailer about launching the 'hybrid' format, which would combine best of traditional format and e-commerce. It is a result of my post-MBA efforts to discover opportunities in grocery retail, which I have been working on for the last two years.

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Valentyn Dzoba, M.B.A. Beta Gamma Sigma
TRONDHEIMGASSE 2a/1.06
Vienna, 1220, Austria
Tel: +43 676 4693486
e-mail: kevxd36@gmail.com, vdzoba@umass.edu
Mr. Chairman
ACME Grocery Retail Corp.
December 5th
, 2016
Dear Mr. Chairman,
I would like to present your company a solution, designed around utilizing IS and data technologies and
remodeling an existing grocery e-commerce format, to boost up sale at your store chain, get equipped to the
fundamental changes at a grocery retailing market caused by online and non-traditional formats retailers, on
top of the demographic changes and, last but not least, stay ahead of direct and indirect competitors in
deploying disruptive technologies and innovations.
My goal has been to devise a proposal aimed at facilitating creation of competitive advantages through an
extension of the store’s Supply Chain, remodeled e-commerce format and the deployment of an Application
that will translate into ‘top-’ and ‘bottom-line’ growth at your store chain. In addition, it is expected to improve
customer satisfaction and build up the competencies and valuable assets at your company, enabling it to deal
with challenges that Traditional Format Supermarkets are facing.
I. What is it all about?
The idea is to provide the customers with the App that helps households manage their food cycle starting and
finishing with the plan of grocery shopping in a form of a Shopping List.
The food cycle is understood as a sequence of operations / steps that customers undertake when doing
grocery shopping. It starts with planning and continues with delivery, storage, cooking, consumption, stock
control. It finishes with planning shopping for the next period that is a beginning of the next cycle. At the end
of the cycle, after the shopping has been done, the Shopping List gets actualized. Partially or completely it
gets converted to a store Receipt. Right after this moment the new Shopping List begins getting created based
on the customer’s consumptions and her preferences.
The App employs logic and rules used in the business ERP systems, modified and adapted to the needs of the
customers. Here are the principles used by the App
 The Shopping List and the Receipt are fundamentally the same thing, assuming recurring shopping and
relatively stable set of products purchased by the customer
 The only difference between Shopping List and Receipt is a status of the items at/in them, ‘planned’ for
the Shopping List and ‘bought’ for the Receipt
 Fridge at the customer’s premise functions as an extension of the store, with all inventory management
principles and rules used by business (FIFO, shelf life, safety stock, maximum and minimum or safety
stocks, etc.) being applicable and relevant at a household
 The assortment at the store and subsequently in the fridge determine which recipes are feasible for the
customer
The objective of the proposed solution is to facilitate household grocery shopping planning and general grocery
shopping management as well as prompting customers to shop at the store chain that will increase sale and
create more value for the customers.
II. Why is it worth considering?
There are two tiers of positive benefits for the store, which can materialize, after it offers its customers
business-alike solution to manage the household food cycle.
A. Explicit and implicit rewards

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1) Sale increase. The most obvious, immediate and tangible, expected effect will be an increase of the store’s
sale due to minimization of ‘out-of-stock’ at household and avoidance of forgetting and ‘under purchase’
by the customer at the store during her shopping.
2) Sale volatility reduction. The next benefit is reducing the ‘clumpyness’ of customers’ purchases that
trigger a ‘bull-whip’ effect. Incorporating the customer’s Shopping List into the store’s Supply Chain
planning will allow the store to order quantities matching demand more precisely.
3) Improving ROI from promotions and other incentives at the store as well as overall increasing assets
utilization and productivity. The App will allow the store to be aware of the existing groceries at the
household, which gives the store means to indirectly affect the customer consumption offering the
customer deals and suggesting new products according to the customer’ preferences.
In addition, the proposed solution will help the store ‘defend’ its market share by way of creating a distinctive
and ‘hard-to-copy’ value proposition to the customers, which is offering them a ‘hybrid’ shopping format. The
one that includes best of both, existing traditional and e-commerce formats, plus additional services not
available in traditional nor e-commerce formats.
B. Strategic and long-term benefits
The solution also allow the store to address three critical issues, strengthening a foundation of its strategical
positioning. These are (1) Increasing the costs of switching to another retail; (2) Getting to know its customers
better and establishing a direct channel of communication with the customers to market the products more
efficiently through improved communication; (3) Introducing disruptive technologies that allow the store to
stay ahead of its competitors and extend its market space, offering additional service.
Besides, the proposed solution is going to address some of progressing trends and developments at the
grocery retail market, to which Traditional Format Supermarkets are exposed with no efficient remedy and
solution, and which are eroding TFS' customer base and market share.
Here are three major trends, which, I believe, are critical and, potentially, can be fatal for the TFSs if not
addressed in time.
• Competition from online stores that, on top of losing market share in the existing formats, can result for
TFS in being pushed out of the currently establishing ‘hybrid’ format of grocery and household necessities
retail or being taken over by more successful market players
• Changing demographics, conveyed in the form of growing young urban professionals and Millennials
cohort, who are entering the family life cycle and becoming the dominant customer group with their
distinctive preferences, which are either addressed partially or in most cases not at all
• Finally, limited and low effectiveness of the traditional methods to expand the Traditional Format Stores’
operations into new geographies, customer groups and formats, including the channels, which expose TFS
to the competition from supplements and complements, which are getting into the grocery market
applying the well-developed business models from the non-perishables and services markets
Observing the progress of the online, or ‘click-to-brick’ market operators in consumer packaged goods market,
I believe that the first risk is the most critical one as there are high chances of companies like Amazon
(AmazonFresh.com) going down the vertical integration and extending their operations into the grocery
business value chain zone, currently controlled by traditional supermarkets. That will solve a ‘last mile’ issue
for Amazon and other online retailers, making them more attractive to their existing customers, bringing new
customers and letting them increase their market share that will translate into even higher economy of scale
of online retailers on top of their existing economy of scope. Amazon’s strategy with opening sortation centers
to get closer to the final customers can and most probably will be mimicked in some way by other e-commerce
format retailers such as alliance of Google and Uber and from another side by Walmart, which has already
developed the network of its own delivery and fulfillment centers.
III. How will it work?
From a technical perspective the solution is the extension of the Customer Relation Management system,
which feeds ERP’s customer management and inventory management modules with data of the customers
shopping plans and stocks. Cloud computing SaaS appears to be most appropriate technical solution to reach
to the customers.
IV. Next steps

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The enclosed presentation provides an overview of the proposed customer grocery shopping management
solution (the App). This presentation was built on the findings of my two years of research on the subject of
grocery shopping and e-commerce, my studies, my professional experience in food business and my personal
experience in managing household grocery shopping.
In addition to the presentation, I created the mock-up of the Application, which gives the idea on the App’s
functionalities and shows the concept of the proposal from the customer’s perspective. Should you or
someone of your colleagues be interested in the proposed solution description as per the enclosed deck, I will
be happy to provide an access to the mock-up to facilitate father dialogue.
I expect the store chains at three or four largest markets to be interested in considering this idea of mine. I
listed them all in the presentation enclosed at page 67.
I would be happy to discuss with you the next steps and share the access to the mock-up should you wish to
explore more of the proposal enclosed.
Best Regards,
Val (Valentyn) Dzoba

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Appendix 1: The learnings and observations of the grocery shopping process of an average household
Here are a few findings, which were used as assumptions, inferences and suggestions to the proposed solution
and concept, at which it was designed.
Market related
1. Supermarkets is not an exciting way of shopping any longer as they used to be in 80’s and 90’s.
Most, if not all, major groceries retailers jumped at the wagon of the latest data technologies and internet
driven trends, such as social networks, mobile marketing, e-commerce and so on. Adopting the new
exciting formats to the old and traditional models results in not so exciting results, after all. The share of
e-commerce sale of traditional supermarkets is minuscule even after substantial investments made by the
industry participants into developing this format.
2. Traditional supermarkets linger and stay behind the deployment of “big data” and predictive analytics
Supermarkets possess tons of data on their customers and products but are not exploiting them at the
most to improve customer’s experience and optimize value proposition. Data collected by the stores are
relevant for many activities outside of the store. Well-being and exercising, dieting control incl. weight-
watchers, recipes and cooking, planning events / celebrations, and, last but not least, budget control, all
these concerns and issues can be addressed from the store Receipt because for the customer the store
Receipt is where it all begins and where it all ends in retail.
Formats related
3. An existing grocery e-commerce format does not appeal to the majority of customers and is not working
at its full potential
E-commerce in grocery in its current state has little to no future among the mass-shoppers. It does not
target the shoppers, middle-class families with kids and working parents, who make the bulk of the
purchases. However, these shoppers are active users of the online stores for buying durables and non-
food items.
E-commerce format needs to be reframed and extended beyond the ‘click and pick’ or delivery format to
the Customer Relations Management process, where it can appeal to the customers constituting the
target group of the grocery stores.
Customer related
4. Many customers are unconsciously adopting businesslike thinking when shopping for groceries
In essence, the economics of food restocking at household is very close to the economics of the same
process in business organizations because 1) food has a great impact on the customer’s wellbeing; 2)
customer possesses limited storage space; 3) food is usually a perishable good, which requires customer’s
additional control. The safety stock, the consumption period, time between the restocking, the prices,
travel route optimization and so on, are the points, which the households consider when managing the
purchases of groceries and household necessities. However, unlike the business organizations, the
customer makes most of the decisions on the groceries purchase, using primitive tools and means and
usually follows the ‘best practice’ approach or does ‘guesstimation’.
5. That partially explains why the customers do not fancy a ‘last mile delivery’ and are not willing to adopt
it as a conventional service and pay a premium
Mass shoppers are not big fans of the ‘last mile delivery’, especially for groceries, due to its high price,
limited assortment, additional complexity, troubles to arrange the delivery and, most importantly, the
concerns about the groceries quality and freshness of produces. It is a niche service, targeting the
customers with the specific needs and wants, but on the larger scale it does not appeal to mass-shoppers.
Most customers prefer to make their grocery shopping in person enjoying the process of selecting the
produces and food or taking it as a personal responsibility, part of their daily routine and chores.

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6. Customer’s fridge can be seen as an extension of the store’s supply chain, i.e. a micro-warehouse at a
customer premise
The customer’s space at home, where she stores the purchased food, such as a fridge, cabinets and
shelves, can be seen as an extension of the store’s supply chain. The fridge and storages are a small
warehouse or an extension of the store at customer’s premise, which is located in the nearest proximity
to the point of consumption, the kitchen. Therefore, the fridge and the storage space at the customers’
premises can be included into the store’s Supply Chain.
Customer’s stock can be managed applying the same principles used to manage store’s inventory but
adjusted to the specifics of the household. Three major ones are
- great importance of avoiding out of stock
- consuming food according to FIFO principle or an expiration date
- recipe driven consumption of products
7. Knowing enough history of the customer’s purchases, it is possible to predict the customer’s next
purchase with high level of probability
In general the customers are very traditional and conservative about food consumption, especially about
food consumed at home. Furthermore, the food consumption, including selection, shopping, cooking and
eating is an intimate process for many customers, which is shaped by the customer’s social group culture,
her diet preferences, nurturing process, etc. That is why it is extremely difficult to change food related
habits, as well as adopting to the new formats of shopping, such as e-commerce.
Traditional and conservative behavior regarding the food extends to the grocery shopping habits as well.
All else equal, the receipt from the store is almost identical to the shopping list as the customer sticks to
the same set of products, making some changes, depending on the season, planned events, and other
external factors.