WHY SHOP AT THE STORE WHEN YOU CAN BUY ON-LINE LIMES AND E-DAM CHEESE FROM YOUR HOME COMPUTER? SCRAMBLED E-GGS, ANYONE?
The Internet provides a virtual world bazaar that welcomes any shopper with a computer and a credit card. But can it compete against your local grocery store?
A growing number of web grocers are betting that shoppers will happily abandon their weekly schlep to order household supplies from the comfort of their computer desks. Forrester Research, based in Cambridge, Mass., projects that the online grocery business will grow to nearly $17 billion in 2004 from $513 million last year. U.S. grocery purchases now total about $500 billion yearly.
"Grocery shopping is so mundane. It's almost robotic," said Louise Hadad, co-owner and online coordinator of GrocerOnline.com, an outgrowth of 29-year-old Farm and Home Foods of Englewood. "So why not have a way to have someone do that for you?"
GrocerOnline is a pioneer in the e-grocery business, delivering nonperishables and dry ice-packed frozen foods nationwide. It plans to expand to home delivery of Internet-ordered groceries in parts of Denver later this summer. Denver, however, is on the shopping list of several other companies, as well:
* Webvan.com, based in Foster City, Calif., expects to open its 350,000-square-foot Denver distribution center early in 2001, said Bud Grebey, director of corporate affairs. Now serving the Atlanta and San Francisco Bay areas, Webvan will expand to four more markets this year, and nine more, including Denver, next year. Webvan also delivers prepared meals, drug store items, dry cleaning, pet foods, and business services including office supplies and catering. Its Denver center will stock 50,000 SKUs, or stock item numbers, compared to the average grocery's 18,000 Grebey said.
* Streamline.com, Westwood, Mass., which offers flowers, UPS package shipping, bottled water delivery and shoe repair, as well as groceries, expects to serve the top 20 U.S. metropolitan areas, including Denver, by 2004, said spokeswoman Donna Gadomski. The company now is in northern New Jersey; Washington, D.C.; Boston; and Chicago, and plans to launch service in Minneapolis by year's end. The timetable for Denver is uncertain, she said. Nordstrom, the department store company known for customer service and quality, owns a third of Streamline.
* HomeGrocer.com, of Kirkland, Wash., in late May said it would build a 100,000-square-foot warehouse/distribution center in the Compark Business Campus, near the Denver Technological Center and Park Meadows Mall.
* Other entrants in the online grocery business include NetGrocer.com, of Brunswick, N.J.; Peapod.com of Skokie, Ill., which, like GrocerOnline's parent company, has a long history of shipping foods ordered by fax and phone; and PeachtreeNetwork.com, based in Montreal, Quebec.
* Established "bricks-and-mortar" stores are going online, too: Albertson's has launched its Internet shopping site, with home delivery initially in the Seattle area. Publix Super Markets Inc., with 625 stores in the southeast United States, announced in April it will open an online subsidiary for home delivery and in-store pickup of orders.
At present, however, no online grocery can deliver to Denver-area shoppers 100% of the items they can buy at a local supermarket. Metro customers can have only non-perishables shipped in. (GrocerOnline also ships frozen vegetables, fish and meats, packed in dry ice.)
Full-service shopping -- with baked goods, fresh meat and produce -- is just months away, however, through Webvan and GrocerOnline.
Metro Denver is an attractive e-grocery market, Webvan's Grebey said, because of its demographics -- lots of busy, double-income households -- and its technological savvy "People are time-starved," he said, "Also, it's a very sophisticated market in terms of Internet use and technology, one we believe will readily embrace online shopping."
While busy suburban families are a prime target of the e-grocery business, other groups also have turned to the convenience of online ordering. Hadad, of GrocerOnline, has seen growing business from the handicapped and elderly who have trouble getting out to shop, as well as business travelers in extended-stay lodging and vacationers in holiday condos or cabins.
Convenience aside, online grocers have to meet the price test. All boast that their prices are competitive with local supermarkets', and ColoradoBiz's spot-check of about a dozen items at King Soopers bears out the contention. But delivery fees can significantly run up the cost of orders: ColoradoBiz's online experiment ordered about 10 items from three grocers: Shipping on one $19.27 order was $8.07.
Where home delivery is offered, charges vary. HomeGrocer.com offers free delivery for your first order and later orders over $75, and charges $9.95 to deliver lesser amounts. Webvan's delivery is free for orders over $50. Streamline doesn't charge for delivery, but charges a $30 monthly fee.
The economics of e-groceries is vastly different from bricks-and-mortar stores, but the industry still operates on razor-thin margins, according to Forrester Research. The new e-grocers may not have to build dozens of stores to serve a metro area, but they do incur high delivery expenses, which include gasoline, vehicles and drivers, notes Forrester Research. Publicly traded egrocers are bleeding red ink.
HomeGrocer.com, (NASDAQ: HOMG) operating in Seattle; Dallas-Fort Worth; Portland, Ore.: and Orange County and Los Angeles, Calif., went public in March. It lost $43.5 million in first quarter 2000 compared to a loss of $3.7 million in the year-earlier quarter. Streamline (NASDAQ: SLNE) lost $11.72 million in the first quarter, compared to a $4.4 million loss a year earlier. Similarly, Tesco Plc., the United Kingdom's largest supermarket chain, said its Internet unit lost $17.2 million in the year ended Feb. 26 because of high roll-out costs.
Such losses are the main reason that Whole Foods Market Inc., with 108 natural foods supermarkets nationwide, decided against joining the online-grocery frenzy, said John Fischer, director of Internet marketing. Its Wholepeople.com website, launched in March and based in Thornton, sells non-perishable foods, but also a wide range of "healthy living" products, such as vitamins and supplements.
"We are not a grocery site. We are a lifestyles site," Fischer said. "We realized that it's going to be very difficult to make money selling groceries on the Internet. There's so much labor involved. It's the reason full-service gas stations went away
King Soopers, a unit of the Kroger Co., also is taking a cautious approach to online sales. "We see there's a niche there, and a fairly small niche," said Dave Hobson, King Soopers teleshop manager. "We certainly don't see the volume some of the startups are projecting." Where Kroger has direct competition from online grocers, it has not seen much impact, he adds.
King Soopers' caution is based in experience: A few years ago, the high cost of deliveries forced it to suspend its fax and phone-based service for all customers but the disabled and elderly Last October, it began Home Shop, an online service that requires downloading special software for $19.95 from King Soopers' web site. In the near future, online shopping will move to an html- based site.
The King Soopers' system is storebased: A shopper must live within 10 miles of a store, or will have to drive in to pick up the order. The cost is $7.95 plus 8% of the merchandise total for orders $150 or under. The percentage drops to 6% if the total is over $150. Items that aren't "shopped" -- physically pulled from shelves -- such as a deli platter or a prescription -- do not count toward the total.
Perhaps the bigger unanswered question in the e-grocery business is whether shoppers will embrace it.
"The biggest challenge we face is changing behavior," allowed Grebey.
PricewaterhouseCoopers, a worldwide professional services organization, surveyed Internet users last year, and found few even aware of online grocery shopping. Only 1% grocery-shopped online monthly Only 18% said they were interested in grocery home-delivery of any kind.
When asked what it would take to switch them to online grocery shopping, those surveyed said free delivery (46% of respondents), being able to use manufacturers coupons (40%), and ability to set a specific delivery window (36%) were the most important factors. But 21% replied "nothing" would make them more likely to shop online in the future.
"It is nearly impossible to translate the grocery-shopping experience online," said Mary Brett Whitfield, director of the e-retail unit at PricewaterhouseCoopers. "It's also a highly personal process."
Many shoppers can't see giving up their "quality control" -- choosing meats, produce and the like. Others depend on walking the aisles to remind them of items they've forgotten to put on shopping lists.
Online grocers know they must overcome these perceptions. Hadad, of GrocerOnline, hopes to incorporate prompts in her website that will steer shoppers to items they might overlook. For instance, if the shopper orders hot dogs, the system will offer buns and mustard, as well.
Streamline allows customers to set up "don't run out" lists that automatically order certain staples according to timetables shoppers choose (laundry detergent monthly or peanut butter weekly, for instance). Gadomski said a shopper also can set up a master shopping list up to 200 items long to be reviewed on each visit.
Grebey said Webvan is overcoming shoppers' reluctance to order produce online by ensuring that they receive top quality Some 15% of Webvan's sales come from produce, compared to 8% in a traditional grocery, he said, suggesting the strategy is working. Also, delivery personnel serve as on-the-spot customer service representatives, adjusting charges for any items deemed sub-par.
Online shopping can result in lower food bills, the companies assert. Everyone's experienced going to the store for one item and coming home with three bags. "Impulse buying" is major revenue stream in traditional grocery retailing. Online, however, there are no candy bars or magazines at the checkout stand, no end caps of discounted merchandise, and no children badgering you to purchase cookies.
While online grocers offer specials and sales, "our customers don't find they're making as many impulse purchases," notes Gadomski.
She and others in the business expect more traditional groceries to open online subsidiaries or buy into existing online grocers. And consolidation, to perhaps four or five major players, is likely as well. Online grocery-shopping, they believe, will someday dominate the food retail business -- if not in this generation, then the next.
"My kids, when they grow up, no way they're going to the grocery store," said Grebey.
SANDY GRAHAM'S ONLINE SHOPPING ADVENTURE
Verdict: E-groceries are for the brave and fit -- so far
During my first forays into the brave, new world of online grocery-shopping, I thought: I don't have time for this!
Although convenience and ease are among the rewards touted for online shopping, I initially found the experience time-consuming and frustrating. It wasn't until several company spokesmen offered advice and assistance that I found my way through the maze. My story:
On the first day, I try to collect online grocers' names via my favorite search engine. I come up with more than 1,100 "hits" when the browser looks for "online grocery shopping." I cull a few names and start shopping.
Peapod, of Skokie, Ill., doesn't deliver to my Zip code, I find. It invites me to order non-perishables by mail, but I forge on. I locate GrocerOnline.com, an Internet outgrowth of Denver-based Farm and Home Foods, a grocery shipping service founded in 1971. GrocerOnline sends nonperishables, plus frozen meats and vegetables packed in dry ice, nationwide via United Parcel Service and Federal Express.
I decide to "always buy Colorado," and choose the "shopping list" option, typing in about 12 staples for my family of four: milk, eggs, cheese, bread, soup, Shredded Wheat, Cheerios, cookies, bananas, apples and chicken. I wait. After long minutes, the website grinds out 33 pages of choices!
Because I've been non-specific in my requests -- I concoct the list just like I would to shop King Sooper's -- I get banana bread, egg and cheese breakfast burritos and scores of other unwanted items containing my search words. Overwhelmed and out of time, I sign off for the moment.
Maybe I need DSL or other high-speed access to do this, I think. Two weeks pass in which I interview several online grocery companies and Learn my goofs -- many of which I could have avoided if I'd read the websites' guides a little better. Every executive insists that a week's worth of groceries can be ordered in just 15 to 20 minutes online, once you learn the ropes.
I try again: This time, I target three websites and narrow my list of items to nine specifics: Nabisco Shredded Wheat 'n Bran, StarKist tuna in water, Ocean Spray cranberry juice, Kelloggs Pop Tarts, Charmin toilet paper (which I find the websites know only as toilet "tissue"), Campbell's alphabet soup, Hunt's spaghetti sauce Pert Plus shampoo and chicken breasts.
This time, in each virtual grocery, I stroll the "aisles," calling up categories such as canned food or personal care products. When those searches sometimes prove too broad, I use the "look-up" function to find specific item. It's still challenging; I can't get one grocer to find alphabet soup, and finally scroll through nine pages of Campbell's soups to find its "vegetarian vegetable." And I can't always find the same size container, or same brands at all three I substitute "like" items, which I do at the corner store, too.
While I'm not buying a full week's groceries, I do manage in about 20 minutes at each site to set up a customer account, shop, and check out by credit card.
Future visits should go even faster: The websites save my shopping lists. I could also expand them to master lists to check off when I shop.
As yet, I can't get fruits, vegetables, dairy products, fresh bread and fresh meats online. GrocerOnline plans to expand its offerings to include such perishables, as well as institute home delivery in certain Denver Zip codes, by late summer, Webvan, based in Foster City, Calif., plans to open in Denver early next year and will be able to deliver 50,000 items from its Stapleton warehouse including hand-cut meat, fruit and veggies.
For now Denver shoppers receive orders via Federal or United Parcel Service. My orders placed late on a Friday, trickle in GrocerOnline's nonperishable shipment wins the race (being local, it should), arriving at 3:30 p.m. on Tuesday. Wednesday, its meat shipment arrives. On Thursday, Peapod and NetGrocer's boxes arrive within hours of each other. The, orders are complete and well-packed, with the exception of the chicken breasts, which inexplicably are sent without dry ice. GrocerOnline apologizes profsely, and ships more for delivery on Friday.
Am I sold on online grocer shopping? I'm intrigued -- but for now, I'll stick to the bricks-and-mortar stores. I'll try this brave, new world of shopping again when the full-service online grocers arrive.
