One moment it looked like we might have a winner, and the next instant everything was reversed and it was too close to call.
No, I'm not talking about Bush and Gore.
The race to win the on-line grocery home-shopping contest has turned into a competition with sudden fortunes, falls from grace and come-from-behind moves. Not long ago the pure-play dot-coms were soaring and the conventional grocery industry appeared to be left on the runway. But the pure-plays have fallen to earth along with the wider Internet sector. Last week's announcements by Streamline.com and ShopLink.com that they will exit the Internet grocery business follows a string of similar moves by other companies, including Priceline.com's Webhouse Club. Many pure-play companies marketing groceries, including Webvan, are having a tougher time. Still other dot-coms have found white knights in brick-and-mortar companies.
Next year will be a crucial one for the home-shopping sector. And unlike a year ago when it looked like on-line grocers might eat supermarkets for lunch, this time it's the conventional supermarkets' game to lose.
Supermarkets have the resources, established brand franchises and the trust of their consumer base. They also have the determination to use the Internet to help reclaim lost ground in the center store, which is the biggest draw for on-line food shoppers, according to a recent study from Greenfield Online.
But supermarkets will face competition for on-line dollars not only from pure-plays but also from other retailing formats. How will supermarkets move ahead on-line? One way is to merge with companies that have experience in the home-shopping field. Many of the biggest retailers have already made partnering moves, such as Safeway's alliance with GroceryWorks and Ahold's with Peapod. There are still potential mergers open to food retailers that haven't yet linked with on-line specialists.
Other retailers, especially medium- and small-sized ones, may decide on outsourcing arrangements that put them immediately in the grocery home-shopping game while leaving the technology and logistics to others (See related story, page 15). What about supermarkets already practicing home shopping? They will likely experiment with business models next year. For instance, those companies offering home delivery will have to take note of an industry trend of raising delivery charges for smaller orders, a move intended to increase order sizes and make business profitable more quickly. Probably our best understanding of trends will come from watching the hottest home-shopping markets, including Atlanta, Boston and Chicago. If you can make it in these markets, you can make it anywhere. In Atlanta, Publix and Harris Teeter are planning to roll out home-shopping services at a time when Webvan is on the scene and building a customer base.
It's easier to follow home-shopping developments now compared to a year ago because the best players are keeping in sight a singular goal: profits. Companies are increasingly forced to justify how their moves will speed the arrival of earnings. Profits need to be a lot nearer in order to please investors
Predictions will be less important than proof. Webvan ran into trouble recently by missing a major profitability target in its oldest market of Oakland, Calif. Investors are less forgiving these days about missed targets.
The year 2001 will help clarify many issues about the growth of home shopping. It will become clearer which operators have sustainable models. Let's hope that by the end of next year consumers are offering a vote of confidence rather than protesting the outcome.