NEW YORK -- Combining consumer access via the Internet with shipping by Federal Express, Memphis, Tenn., the recently launched NetGrocer here is bidding to become a nationwide home-delivery service for nonperishable groceries.
Interest in home-shopping services has been growing recently, despite continuing challenges in making such programs cost-effective. Several different consumer-direct models currently coexist, and growth in this segment overall could threaten traditional supermarket retailing.
Reliable measurements of the size of the consumer-direct market are difficult to come by, but industry experts believe that the segment could account for 5% to 15% of volume in five to seven years.
Some retailers express doubt that an on-line service would be able to replace the supermarket shopping experience. "Customers will always look to a trusted local retailer for their goods," said Ron Clyde, vice president of electronic commerce at Randalls Food Markets, Houston. "It will be interesting to see how this plays out over time."
Randalls is a retailer partner with Peapod, Evanston, Ill., in offering home-shopping services in the Houston and Dallas markets.
"It's possible this kind of service will be reaching a different type of consumer than a traditional supermarket," said Bob Drury, vice president of management information systems at Schnuck Markets, St. Louis. "However, they represent only one piece of the shopping requirement, since they don't carry fresh foods." Schnuck recently launched an on-line, home-delivery service available to consumers in its market area.
Home-shopping services vary significantly in their methods of sourcing and delivering products to consumers. Many chains offer home shopping as an extension of their retail operations. Peapod and Shoppers Express, Bethesda, Md., work with retailer partners in a variety of major markets. While these services can offer a wide range of both dry goods and produce, they are limited to the metropolitan markets served by the retailers.
Streamline, Westwood, Mass., is supplied by Supervalu, Minneapolis, and delivers groceries to freestanding units in customers' garages. Operations are currently limited to the Boston area, though the company plans to expand. NetGrocer bypasses the retail level completely, and its use of Federal Express as a delivery vehicle gives it virtually nationwide coverage. However, its selection of products is fairly limited, with only 2,500 stockkeeping units currently available.
Because all consumer contact takes place within the closed loop of its web site, NetGrocer will be able to gather important data on product movement and consumers' shopping preferences, according to Daniel Nissan, the company's president and chief executive officer.
"There will be a flow of product to the consumer and a flow of information to the manufacturer," he said. "We will be able to make available product movement information, with both demographic and geographic data, in real time."
NetGrocer sources dry grocery products both from wholesalers and directly from manufacturers, said Nissan.
The company warehouses its products at the Dallas/Fort Worth airport, with warehouse management services provided by American Airlines, Dallas/Fort Worth. NetGrocer has a partnership with the airline's distribution services division, said Nissan.
The company launched its web site, www.netgrocer.com, July 21, following an eight-week test with 300 people using NetGrocer's ordering and delivery service. Nissan did not give details on how many people have visited the site since it went live, noting only that the launch has been "very successful."
NetGrocer delivery fees are $2 for the first 10 pounds of an order and 99 cents for each additional 10 pounds. Typical order delivery charges do not exceed $6, according to a company statement.
Nissan sees NetGrocer's main demographic, however, as those aged 35 to 50 years old, with children living at home. He feels the service will appeal to these busy consumers. "By building a process and a solution [for home shopping], we'll eliminate the store level and deliver savings for the customer," he said.