Online Grocers Adjust

AL HELLER

The collective activity of online grocers FreshDirect, Peapod, Simon Delivers (now owned by Coborn's) and Amazon suggest that lessons of the past were learned, and appropriate business models established for today's economy.

“It doesn't matter if we're online or offline. The economy helps the grocery business because people are eating home more,” said Steve Druckman, chief marketing officer, FreshDirect, New York.

True enough. Yet online grocers that have no brick-and-mortar retail expense are even better off. As a result, Druckman claims his food prices are 10% to 15% less than at New York-based rivals Food Emporium and Gristede's, and the enterprise is growing.

With a fleet of 150 trucks, FreshDirect had imposed a fuel surcharge earlier this year, but later built it into the delivery fee instead ($5.79 in Manhattan) to insulate customers from the upside variable. Other choices: $59 unlimited deliveries for six months, or $99 per year.

FreshDirect also maintains a sophisticated customer database, so it communicates, for example, with vegetarians and kosher adherents in ways that suit their preferences. This month it issued “10 points of improvement,” detailed in a letter to customers, that include expanded wines, greener packaging, more convenient delivery times and loyalty rewards.

Seattle-based Amazon, meanwhile, launched delivery of fresh product to a limited geographic market near its headquarters with a low order threshold ($25 of eligible items) for free delivery.

“We don't think customers should have to pay for fresh delivery,” said Tom Furphy, vice president-consumables at Amazon. “We're a great solution for busy moms who would rather not take hours out of their week [and] for brand-loyal consumers who are frustrated that their favorite products are getting squeezed off of store shelves. We can offer a very deep assortment without traditional shelf space constraints.”

Of course, Amazon, the king of online selling, will apply its lessons learned in other categories to grocery. For instance, a “Subscribe and Save” program replenishes a consumer's favorites at scheduled intervals and qualifies the shopper for 15% discounts.

“I suspect rising fuel prices are moving consumers toward more online shopping, and we estimate we're still in the single-digit percentages of people shopping for groceries online,” said Furphy.

Local press reports in Minnesota pegged the abrupt end of SimonDelivers in July to high gasoline and food prices following nine years of service. Expected to revive this month under Coborn's ownership as CobornsDelivers.com, chain spokesman Steve Gottwalt told the St. Cloud Hutchinson Leader that the chain's purchasing power and operations experience should be enough to overcome the expense problems that tripped up the operation.

Peapod and Coborn's sources were unavailable to answer questions.

Meanwhile, consultant Bill Bishop, chairman of Willard Bishop, Barrington, Ill., feels “the jury is out on online grocers as a stand-alone business proposition, though they're really wonderful services generally. If the only cost they have to acknowledge is item selection and delivery, then they have a shot at making it pay.”