With all that has been written about the demise of Webvan, ShopLink and HomeRuns, you might think that the concept of “e-groceries” is dead. Far from it.
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Slowly but surely, retailers are coming back with two basic business models — online ordering piggy-backed onto existing supermarkets, and the so-called pure-play approach, which seemed in danger of dying off after the Webvan conflagration, but now has resurfaced with a much more specialized way of doing business.
In terms of operations based on brick-and-mortar supermarkets, Albertsons, a 33-state chain based in Idaho, and Safeway, also concentrated in the West, are the most aggressive in their rollout plans for e-grocery.
Albertsons.com currently offers online ordering and delivery in twelve major markets. Safeway.com is serving six markets (and just announced their roll-out in Phoenix last week), and through its Vons.com operation, another 10. According to Nielsen/NetRatings, Albertsons.com has increased their online audience by 54 percent, and Safeway.com increased 60 percent for the 12-month period ending January 31, 2005, for an online customer base of about 400,000 people.
Meanwhile, Kroger, the nation’s largest supermarket chain, has been dipping its toes in the online pool in a more limited way, testing Internet shopping in Denver through its King Soopers division since 2003. Almost two years later there has been no indication of a further roll-out.
Peapod, acquired by international retailing conglomerate Ahold in 2001, is doing business in eight states, mostly as the e-commerce arm of existing Ahold chains such as Giant and Stop & Shop. The company reports that the division generated $183 million in sales last year, up 25 percent from the $147 million generated in 2003.
Another development: Bob Clare, a New Jersey ShopRite retailer with a single 80,000 square foot store, has licensed out the NetGrocer name and is shipping orders all over the country and even abroad. (ShopRite is a cooperative of individual supermarket owners, centered in New Jersey.)
The pure play
As for the Internet-only model, the story has been slow but sure. Based on the concept of a central warehouse and a fleet of vans (thus avoiding expensive retail space), the companies having success have concentrated on providing high-end products (with higher profit margins) and stressing the convenience factor for today’s harried families.
In business for almost six years, SimonDelivers.com has put a lot of its marketing emphasis on providing fresh foods — produce, meat and seafood — to shoppers in Minnesota and parts of Wisconsin. The company is an aggressive marketer; one program offered shoppers that spent at least $80 a week for seven weeks, $80 worth of groceries free in the 8th week (the equivalent of a 15 percent discount).
New York City-based FreshDirect.com believes that the way to build sales is to add higher-margin items, including wine and prepared meals — and to position themselves as competitors with restaurants as well as supermarkets. In general, FreshDirect has been embraced enthusiastically, especially in Manhattan, where dense real estate leads to small supermarkets with limited selections and high prices. The company reported more than $100 million in revenues in 2004 and has more than 250,000 customers, with an average transaction of more than $100.
Local supermarket chains have been forced to take notice. John Catsimatidis, CEO of New York-centric Gristedes, has gone on the record as saying that he launched an online business because he saw that FreshDirect had stolen about $20 million of his chain's $300 million in sales. He also has said that if FreshDirect were to fail, he'd immediately shut down his online operation.
Almost needless to say, industry giant Amazon.com is getting in on the act. Among the company's zShops, a space for merchants to assemble and sell a variety of products, Amazon has introduced both a gourmet specialty store and a sweets shop. The gourmet shop features everything from caviar to smoked salmon to imported cheeses, while the sweets shop focuses on confections such as cakes, tarts and candies. Each shop highlights several specialty retailers as well as linking the viewer to the vendor's Internet site. Prices for products at the sweet shop range from around $5 for brownie mix to $300 for a gift basket, and at the gourmet shop, one can purchase olive oil for $10 or beluga caviar for $490. In addition the customer will pay anywhere from $2.50 to $50 for shipping and handling.
It seemed safe five years ago to predict that online grocers would encourage a revolution in how people shop. That hasn’t happened — the reality is that online just adds one more acquisition method. However, online grocery shopping is likely to continue to grow steadily, perhaps reaching as high as $10 billion in annual revenues by the end of the decade.
The next phase? What consumers want (and e-commerce can satisfy) is to come up with an automated system to ensure that we never run out of toilet paper, paper towels, soda and laundry detergent. Bulky, heavy, branded staples that should automatically appear — and just in time.
Now, that really would be a revolution.
Phil Lempert is food editor of the “Today” show. He welcomes questions and comments, which can be sent to firstname.lastname@example.org or by using the mail box below. For more about the latest trends on the supermarket shelves, visit Phil’s Web site at www.supermarketguru.com.