Sunday, May 30, 1999
Consumers still leery of online groceries
BY RACHEL BECK
The Associated Press
NEW YORK — You'll buy a book, balance your checkbook and even invest in stocks over the Internet. But when it comes time for grocery shopping, most folks still hop in the car and head for the supermarket.
That might change soon. Some of the Internet's elite, such as retailer Amazon.com and the founder of software pioneer Netscape, are betting big money that consumers will soon be salivating over the idea of buying everything from fresh tuna steaks to raisin bran online.
ON THE SHELVES
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A list of some online supermarkets and what they offer:
HomeGrocer.com:
• Headquarters: Seattle.
• Where it does business: Serves more than 10,000 customers in Seattle and began operating in Portland, Ore., recently.
• Types of products: Groceries, magazines, wine and fresh flowers.
• Delivery fees: $9.95 for all orders under $75, and free when higher than that.
Peapod:
• Headquarters: Skokie, Ill.
• Where it does business: Serves more than 100,000 customers in eight markets, including Chicago; Houston; Dallas; Austin, Texas; Boston; Columbus, Ohio; San Francisco; and Long Island, N.Y.
• Types of products: Groceries.
• Delivery fee: $5 to $7. In some markets, there is an all-you-can-eat monthly fee.
NetGrocer:
• Headquarters: North Brunswick, N.J.
• Where it does business: Available nationally.
• Types of products: More than 10,000 nonperishable goods.
• Delivery fee: Shipments handled by Federal Express, with costs usually running about 7 percent to 10 percent of the total sale.
Streamline:
• Headquarters: Westwood, Mass.
• Where it does business: Boston area.
• Types of products: Groceries, fresh flowers, firewood and charcoal. It also offers dry cleaning and video rental services.
• Delivery fee: Not available.
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“It's all about experience, and if you make the online experience better than what they can find themselves at the store, there's a great chance that your online grocery business will succeed,” said Michael May, an analyst at Internet research firm Jupiter Communications.
Online grocery sales are still quite small, totaling just under $150 million last year, less than 1 percent of the more than $440 billion in total supermarket sales, according to Jupiter.
While Jupiter expects sales to rise to more than $3.5 billion by 2002, the market is developing slowly as Web grocers gear their businesses to the needs of individual communities rather than take the riskier route of going global.
So far, the biggest challenge for cyber-grocers has been convincing Americans to just try them out.
In fact, less than a million people have bought groceries online, while the average American visits a brick-and-mortar supermarket 2.2 times a week.
“Americans are attached to their supermarkets. They like to wander around the stores and touch and smell what they are going to buy,” said Tom Agan, who works at the retail consulting firm Kurt Salmon Associates. “It's not so easy for many people to give that up.”
Today's online grocers are also struggling to assure shoppers that spoiled food, hefty surcharges and late deliveries aren't the standard. Most charge a delivery fee of $5 to $10, which is sometimes waived for larger orders.
“I didn't get what I wanted, it wasn't cheaper, and the delivery was late. After all that, I figured it was easier to just go to the supermarket,” said Janice Ryer, a working mother of two from Atlanta.
Ms. Ryer hasn't bought groceries online since her disastrous attempt a year ago from a now-defunct Internet supermarket that operated out of her local Kroger market.
But that doesn't mean that the fledgling industry is without potential. Just a year ago, shoppers steered away from buying clothes on the Internet because they couldn't try them on. Today, the market is booming as fears about bad fits and restrictive return policies fade.
The e-grocers now generating the most buzz — and investment dollars — seem to have an important combination of technological savvy and understanding of consumer service.
One is Webvan of Oakland, Calif., which plans to begin serving the San Francisco Bay area later this year.
Webvan, founded by Borders Books founder Louis Borders, has backers like CBS and the big Japanese high-tech investment firm Softbank.
Webvan's mechanized warehouse has motorized carousels filled with thousands of items. There, a worker can fill 10 times more orders in an hour than most competitors, whose workers roam grocery stores or warehouses, filling shopping carts.
Another is HomeGrocer.com, which said recently that Amazon.com had bought a 35 percent stake for $42.5 million. It also recently received $5 million from the Barksdale Group, an investment firm run by James Barksdale, founder of Netscape.
Founded just a year ago, it now has more than 10,000 customers in the Seattle area. May 17, it began serving Portland, Ore., and had more than 400 customers signed up by midweek.
HomeGrocer buys all of its own inventory, which it then stores in its own distribution center in each city. That holds down its prices and also ensures better quality of products.
It also developed a delivery truck with multiple zones, allowing ice cream to go in the freezer, orange juice to be refrigerated and bread and bananas to stay in a temperate climate.
“I wasn't sure what to expect when I started ordering from them,” said Michelle Borozan, a high-tech worker from Seattle who started shopping at HomeGrocer in February when her son was born. “But it really is easy and convenient.”
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