The market for on-line food retail stocks remains very volatile as investors try to position themselves to be part of the company whose concept ultimately becomes dominant, industry analysts told SN last week.
"Everyone is looking for the next Microsoft," said Jonathan Ziegler, San Francisco-based managing director of Deutsche Bank/Alex Brown, New York.
According to Gary Giblen, New York-based managing director for Banc of America Securities, San Francisco, "Every time another company goes public, investor interest shifts as people tell themselves, maybe this will be the successful one. So there's still a lot of volatility in the area of e-tailing."
That seemed evident during 1999, when three new Internet food retailers went public -- Priceline.com, Stamford, Conn., in April; Streamline.com, Westwood, Mass., in May; and Webvan, Foster City, Calif., in November -- to join Peapod, Skokie, Ill., on the nation's stock exchanges.
But some of the new issues declined by year-end (see chart, Page 13). Streamline's stock rose 12.3%, while Webvan stock fell 33.7% and Priceline declined 42.9%. Peapod, meanwhile, saw its stock price rise 26.6%.
Ziegler said the on-line food group benefitted for a while from a well-managed media effort by Webvan at the time of its initial public offering. "That spooked some investors into believing stocks of brick-and-mortar supermarkets have had it, prompting some investors to move to Internet stocks as a major growth area," he said.
"And with the relatively sluggish same-store sales growth among those B&M companies, investors didn't need much of a push to leave the old standbys and go to e-commerce company stocks."
Giblen said the performance of e-tailing stocks will probably remain erratic for the foreseeable future. "Half the time, they trade at variance with one another, depending on which one is hot. And the other times, the market sees food e-tailing as a big opportunity and the whole group prospers."
Mark Rowen, senior Internet retail analyst for Prudential Securities, New York, said he sees on-line food retailing developing in two directions: those that cater to convenience for order fulfillment, like Peapod, Streamline and Webvan, and those that are price-oriented, like Priceline.
Ziegler said he expects additional on-line companies to move into the public arena, with HomeGrocer.com the next to launch an IPO, "and the public seems willing to cough up funds to invest," he noted.
However, while noting that on-line food retailing is likely to appeal to only about 10% of the population, he said, "I suppose 10% of a $450 billion market is a good niche to go after."
Giblen said e-tailing stocks are likely to grow faster than conventional supermarket stocks, pointing out that Streamline is currently Supervalu's largest customer and its fastest-growing company, albeit starting from a very low base.
Analysts' comments about each of the on-line food stocks follow:
Peapod benefitted last year from the entry of Webvan "and the attendant publicity that drew attention to the opportunities overall for e-tailing," Giblen said.
Streamline.com benefitted from overall investor interest in new on-line technologies, Ziegler said.
However, despite the initial enthusiasm for Streamline, Ziegler questioned its model, which is designed to deliver goods to refrigerator-freezers in customers' garages, "which appeals to a limited consumer base of two-income families living in the suburbs with the money but not the time to shop."
Webvan's stock was hurt because it operates in only a single market, San Francisco, Ziegler said. However, he said, the stock's performance could improve as Webvan fulfills its commitment to go into 28 more markets in the next few years, including Atlanta by the end of 2000, followed by Chicago, Dallas, Seattle and Washington.
Priceline.com's stock got ahead of itself in 1999, Rowen said. "After the company went public, its stock went up to levels that were unsustainable," he said. "But I think this year we will see the stock take an upswing as people begin to realize how powerful this business is."
Giblen expressed less enthusiasm for the Priceline model. "The system is very cumbersome for buying food, and I question whether people want to bid on everyday items like food," he said -- an opinion Rowen rebutted by saying it takes people only a few minutes on-line to place their bids.