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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:


• 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 e-
commerce 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:


• 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.