STAMFORD, Conn. -- If Priceline.com here ultimately succeeds in its grocery initiative, it will validate its founder's core philosophy about the Internet.
"The power of savings is the power of the Internet, so much more than the power of convenience," insists Jay Walker, vice chairman, in an interview with SN.
That credo has been guiding Priceline's leap into the grocery sector with a business model that differs markedly from the pack of home delivery Internet retailers around the nation. In fact, Priceline isn't a retailer, but rather what Walker likes to call a "price distributor," whose Web site enables discounts to consumers who are flexible about which brands they are willing to accept. The program is run through partnerships with local supermarkets and manufacturers
The grocery initiative, just one part of Priceline's diverse businesses, is operated through licensee WebHouse Club, whose chairman and CEO is Jonathan Otto. But the service couldn't be considered a shopper convenience along the lines of Internet home delivery grocers. Far from it. Consumers must complete a time-consuming on-line order process before taking their printed WebHouse Club receipt to the supermarket and shopping for each item, which they eventually take home themselves.
But Priceline can save shoppers money. And that attraction always wins out over other incentives, insists Walker. "Though convenience is important for tens of millions of people, the big business successes in this century were driven by value," he said. "Look at Wal-Mart, Costco and Home Depot. Delivering superior value to a broad audience gets you best positioned. So a Webvan or a Streamline can work, but the on-line price business is a mass business."
Whether one believes in Priceline's philosophy, it's hard to dismiss its early consumer success. WebHouse Club's membership hit the half-million household mark last month. In March it priced 10 million grocery items, doubling to 20 million the total number of grocery items sold on its Web site since the program was unveiled in November of last year.
And these numbers were achieved before WebHouse's major push beyond the East Coast. The program is expected to be available nationally by the end of the summer, And "by Thanksgiving, we'll be in every city in the United States," Walker said.
Marketing is responsible for fueling customer interest. Priceline's advertising effort features "Star Trek" legend William Shatner in a number of television and radio spots. "On the consumer side, Priceline is doing unbelievably well; better than anticipated," said Mark Rowen, an analyst with Prudential Securities, New York. "If you extrapolate the results from their early New York City rollout, in a national rollout Priceline can attract 3 million people in one quarter. And 85% would be repeat users. Those are very good signs."
Priceline has also succeeded in winning over supermarket chains, many of whom considered it an offer too good to refuse. Some of its retail partners are Shaw's Supermarkets, Star Markets, A&P, D'Agostino, The Food Emporium, Foodtown, Gristede's, Pathmark, King Kullen, ShopRite, Stop & Shop, Super Foodmart and Waldbaum's.
"The stores are a little afraid of the concept, but they don't lose anything," Rowen said. "And they're happy to have the customer and a full-price sale."
Rowen said, "I think the big food brands are testing it, but they are nervous about the reaction to the discount pricing by their full-price grocery store accounts."
Priceline counters that its system enables suppliers to capture customers they wouldn't have had -- at well above marginal cost.
Priceline's site displays a large variety of branded products, some from manufacturers that aren't part of the program. For now, some of those discounts are absorbed by Priceline and by sponsors who provide discounts to consumers that agree to fill out a survey or try a service.
"Manufacturers are a skeptical group," Walker said. "But we have more than two dozen manufacturers representing well over 200 product categories."
WebHouse's expansion plans won't be limited to the supermarket sector. For instance, it will look to discount stores such as Target or Wal-Mart as growth vehicles, Walker said. But WebHouse's ultimate success or failure may hinge on its strategy of treating retailers as partners. "Most of the other Internet grocery services are competing against the stores," Walker said. "But the future is the store in a whole new way. So the real challenge is to find new ways to let the stores do what they do best and the Internet do what it does best."
Areas served: Highest concentration on East Coast but gradually moving westward in United States. Volume: $60 million (estimates from sources)
Expansion plans: To be national by summer. By Thanksgiving will have a presence in every city in United States.
Key executives: Jay Walker, founder and vice chairman of Priceline; Jonathan Otto, chairman and CEO of WebHouse Club