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By "Today" Financial Editor
updated 8/29/2005 9:11:55 PM ET 2005-08-30T01:11:55

These days, the supermarket many folks use is in their homes. Yes, more and more people are buying groceries online. “Today” financial editor Jean Chatzky was invited on the show to discuss the pros and cons of this form of cyber-shopping.

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Online groceries flamed out big in the dot-com bust of the 1990s, with one company — Webvan — blowing through a billion (yes, that's a BILLION) dollars in financing.  But over the past few years they've come back, and this time companies are taking it slow and doing it right. 

Today, these groceries are legitimate businesses fulfilling about 1 percent of the nation’s $570 billion grocery bill.  That may sound like a drop in the bucket, but business is expected to triple by 2008, according to Jupiter Research. Meanwhile, a report from the Food Marketing Institute reports that 5 percent of consumers — 3.7 million people — shopped online for groceries in the last year, up from 3 percent the year before.

You'll now see companies like Peapod in 15 markets in the Midwest and East Coast, Albertsons and Safeway in the West, Simon Delivers and Schnucks in the Midwest, and Fresh Direct in New York City.  I've been shopping online myself for the past couple of months — since Peapod came to my neighborhood — and I have to say it's a definite improvement in my life. (And I'm not someone who's ever really minded going to the grocery store.)

Q:Are the prices higher or lower?
A: We actually tested this out in Money magazine by dispatching shoppers with identical grocery lists to shop online — and in the stores — of eight cities across the country.  We found the online bills to be, overall, about the same as they were in the store. We also found that it's easier to put your fingers on the items that are on sale, because they all pop up on the same page.  And you're not as likely to give in to impulse purchases.

Hot Tip:
Before you use an online grocer for the first time, do a search on a major engine (Google MSN, Yahoo, etc.) for the name of the grocer you're using plus the word "coupon."  I found a $10-off coupon for my first time, and then the driver gave me four additional $5-off coupons for my next four visits. Paying by direct check — .i.e. a pre-approved check — knocked another dollar off each visit.

Q: Can you still use coupons? 
A: Yes. With most companies, you give them to your driver and are credited for the difference.  And if you have a frequent-buyer card, you're eligible for those specials as well.

Q: How much time does it actually take? 
A: It takes about an hour the first time you shop.  That's because you're going to have to browse the (electronic) aisles and make out a whole list.  (There’s a possible exception to this: If you have a frequent-buyer card with the store affiliated with the online grocer, you can just type in your number and it will bring up a list of what you bought your last shopping trip. You’ll find it to be a big help!) After that first visit, though, you can call up lists of what you've purchased previously.  Then you can just click on each thing you want to buy again, which is why subsequent trips take only 20 minutes or so.

I also like to maintain a running list.  That way, you can add items as you know you need them until you hit the minimum required for delivery.  One thing that can slow you down is a slow Internet connection. (Using a dial-up modem is not ideal; five out of six Peapod customers, for instance, have a broadband connection.)

PLUSES
Quality: Online grocers tend to offer a higher quality selection of produce because they know that one delivery of mushy strawberries is all it takes to lose you as a customer.  In this regard, damaged goods don't seem to be too much of a problem — products are generally packed in sturdy containers (some of which double as coolers, so that they can keep ice cream, for instance, frozen all along their routes).

Smart shopping: Some sites are designed to help you compare nutritional information.  You can compare, on Peapod, which of the whole-wheat breads has the highest fiber content.  Or which of the frozen pizzas at Fresh Direct has the least sodium. 

Phone refunds: What happens when you've shopped in a store and you realize the milk is spoiled or the meat is bad?  Either you trek back to the store and return it or — if you're busy — you throw it away and eat the expense.  If you've shopped online, you just pick up the phone.  I ordered a 2-pound container of strawberries and only a 1-pound container arrived.  A five-minute phone call (I did have to hold for several minutes) got me an instant credit for half the purchase price.

MINUSES
Delivery charges: Most of the grocers have a minimum for delivery — $40 or $50 — and delivery fees range from $5 to $15.50.  And then there's the matter of a tip. Some companies discourage tipping or don't allow their drivers to accept.  Peapod, which I use, isn't one of them. And I'd feel bad NOT tipping after someone lugged all those groceries into my kitchen.  So I generally give the driver $5.

Waiting at home.  Unless you’re lucky enough to have household help, you have to be there to accept the delivery. However, the wait for the online grocer is nowhere close to the wait for the cable guy (you can usually count on having to leave a one- or two-hour window).  And some sites will actually pay you ($1 off) to choose their less busy delivery times.

Substitutions/cancellations:  If you order one kind of ice cream or cereal or whole-wheat bread and the store is out, they may substitute another brand (or nothing at all).  I ordered Dole lettuce, but the store was out and I got the store brand instead. It definitely was lower quality.  (I needed to make a salad, though, so I didn't gripe.  And it was slightly cheaper.)

Jean Chatzky is the financial editor for “Today,” editor-at-large at Money magazine and the author of “Talking Money: Everything You Need to Know About Your Finances and Your Future.” Her latest book, "Pay It Down: From Debt to Wealth on $10 a Day," is now in bookstores. Copyright ©2005. For more information, go to her Web site, www.JeanChatzky.com.

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