SAN FRANCISCO -- The Internet's rising impact may lead to a reshaping of supermarket layouts and to new partnerships between traditional food retailers and their on-line cousins, according to speakers at the Food Marketing Institute's MarkeTechnics conference here last week.
The Internet's ability to facilitate the replenishment of consumer groceries may free supermarkets to adopt smaller formats with an emphasis on more fresh products, said Fred Horowitz, president of New Brunswick, N.J.-based NetGrocer.
"Supermarkets will want to develop the more exciting part of the store, like the deli counter, produce and fresh meats," he said during a business session.
Horowitz noted that NetGrocer was already providing a venue for national consumer and packaged goods companies to sell direct to consumers on-line.
John Sturm, director and general manager of San Antonio-based supermarket chain H. E. Butt Grocery, agreed that supermarkets could use an overhaul. "We'll probably see a really differentiated pantry format in the future," he said.
HEB is looking to stimulate revenues and rejuvenate margins by stocking more perishables at the expense of center store aisles, he said.
Horowitz floated the idea that on-line operators should consider linking up with brick-and-mortar food retailers, and suggested that NetGrocer could act as a fulfillment partner for a supermarket. "We can work with a brick-and-mortar partner," he said.
Sturm said such a collaboration might make sense. He said HEB is considering shrinking the size of its store to develop higher-margin products. "In the future, we will have to have some kind of alternative pantry fulfillment program," he said.
"We need to reinject fun into the shopping experience," he noted.
But Sturm stressed that HEB isn't about to relinquish customer relationships to third-party e-commerce partners.
While refusing to disclose the timing, Sturm said HEB will deploy an e-commerce site, "sooner rather than later," as a defensive maneuver. "The question for us was, are we willing to let someone take our best customers away from us," he said. "The answer was no."
Sturm said that the most critical issue for HEB is to fend off potential on-line rivals while improving the in-store shopping experience, particularly for the more profitable customers.
NetGrocer, whose warehouse is in New Brunswick, delivers its products nationwide via Federal Express and adds a shipping charge.
Horowitz said he believes NetGrocer will play an important role in what he sees as an eventual market shakeout, offering low-cost solutions for strong regional supermarkets to expand through smaller brick-and-mortar formats.
Horowitz said his company is able to reduce fulfillment costs by using the Internet to develop a replenishment model that is more efficient than existing structures. "We're not about putting a pretty browser in front of an old model," he said.
Horowitz also said that, in the interest of cost reduction, NetGrocer accepts only credit card payments and does not deal with coupons. "We're about driving costs out of the business," he said.
NetGrocer is targeting customers who would rather use their in-store experience to shop for perishables rather than pantry items, Horowitz said. The company's value proposition to consumers is, "We'll squeeze the Charmin so you can squeeze the melons," he added.
NetGrocer is also positioning itself as a national solution for manufacturers seeking an inexpensive way to sell directly to consumers. "Manufacturers can take advantage of our efficiencies to compete with private label brands on price," said Horowitz.
Horowitz noted that NetGrocer was already acting as a proxy site for manufacturers wishing to publish content and information about their products.
Horowitz also indicated that NetGrocer does not charge slotting fees or for unsalables. "No one is talking to the CPGs the way we are," he said.
