ONLINE GROCERY LIVES!

John Karolefski

Reports of the death of online grocery shopping have been greatly exaggerated.

In fact, the business has more than survived the bad press that followed the well-publicized flameouts of Webvan, Streamline and other lesser-known ventures a few years ago. Today there are some successes, and some retailers and other executives familiar with online grocery shopping remain positive about its prospects. Overall, online grocery still represents a modest chunk of the pie, estimated to be less than $1 billion annually in the United States, though some analysts believe that its volume will double each year in the next few years.

"There's a consumer demand that never really went away, and it's expanding," said Mike Spindler, president of MyWebGrocer.com. "If you look at the people who value convenience and time, it's a fairly large swath of the population. Convenience in this case means getting grocery shopping done without spending a lot of time and effort." Tony Blasetti, managing director of BearingPoint Inc., a McLean, Va.-based consultancy, said, "I think the concept has evolved."

That evolution has led to some new ventures, such as FreshDirect.com, a New York-based fresh-food delivery service that launched in July 2002 and operates from a 300,000-square-foot, custom-built facility in the Long Island City section of Queens in New York City. (See story, this page.)

Another company called Melon Seed (www.melonseed.net) began grocery delivery services in Plano, Texas, in the fall of 2002. And Intelis.com allows consumers to buy products directly from the Web site of a manufacturer's brand with affiliated retailers getting the sale and fulfilling the purchase.

"There will always be specialists that do a good job," said James Tenser, principal of VSN Strategies, Tucson, Ariz., and author of "Tenser's Tirades: Essays on the Dot-Com Retail Phenomenon." "They have better ideas and they make fewer capitalization and format mistakes. It really depends on branding and customer relationships," said Tenser.

But perhaps the most noteworthy development in the last few years has been the entry of traditional supermarket chains into the online grocery business. For example, Publix launched its Web-based home delivery service called PublixDirect in south Florida in 2001. The Vons Cos. began its e-commerce operations in the San Diego marketplace in August 2002. Its parent company, Pleasanton, Calif.-based Safeway, already offered Safeway.com in the San Francisco Bay area, Sacramento, Portland, Ore., and Vancouver, Wash.

"A lot of these businesses woke up to the fact that if they don't start doing this, someone else will. They may not have to make it a major profit center in the beginning, but they believe it will be one eventually," said John Stanton, a professor of food marketing at St. Joseph's University, near Philadelphia.

The one-time widespread idea that online shopping is counterproductive because it reduces in-store sales has gone away, according to Stanton. The progressive thinking today is for traditional retailers to sell grocery products in various ways -- in-store, online for delivery to the home and to college dorms, and maybe even for pickup in a special depot in a large business park.

Blasetti of BearingPoint Inc. said, "In 1998, I predicted that home delivery of groceries would evolve into traditional grocers offering that service. They don't have to worry about [not having] purchasing power. The dominant solution is for the store to be the fulfillment center."

That was the formula that Peapod, now owned by Ahold, followed in the beginning when it launched the online grocery business 13 years ago at Jewel Stores in Chicago. "The founders believed you needed to partner with a retailer. It gives you buying power," said Annette McMillan, Peapod's director of marketing.

McMillan said Peapod is growing rapidly in its markets. Sales from 2000 to 2001 grew about 20%. Customer count now exceeds 100,000 in all markets. Peapod will be soon expanding, she said, declining to give details.

MyWebGrocer.com started operations in January 2000 and today offers its service in 200 supermarkets operated by 38 retailers. About 30 are independents and local chains such as Snyders IGA in Oklahoma City, Santoni's Super Markets in Baltimore, and Rice Epicurean Markets in Houston. However, the roster also includes large chains such as Shaw's and Harris Teeter.

The business model of MyWebGrocer calls for just providing systems and expertise. The retailer does the rest, largely piece-picking groceries in-store and offering home delivery and at-store pickup of online orders, both for a fee.

"Our same-store sales have seen a 100% gain year to year for two years," said Spindler. " I don't see anything that will temper the volume growth. Netgrocer.com, which is not affiliated with a bricks-and-mortar retailer, bills itself as the nationwide online grocery store. Founded in 1996, it services the country from a 120,000-square-foot warehouse in North Brunswick, N.J. Netgrocer.com carries 20,000 items, including all nonperishable staples. It buys 40% of its packaged goods directly from manufacturers and the rest largely from two wholesalers: Fleming Cos. and Millbrook Distributors.

"Netgrocer.com continues to be successful despite the fact that we are not spending aggressively on marketing to consumers. We have loyal consumers and good value for the dollar," said Lisa Kent, president of NeXpansion, the parent company.

"We've learned that there is a very significant segment of the population that does not want someone else picking out their perishable products -- especially their fruits and vegetables."

Another division of the company offers an online service called the Endless Aisle. It enables retailers to offer shoppers a way to order hard-to-find items and have them delivered to the home. They can place orders at a Web-enabled kiosk in-store or on the Web site. A half dozen retailers offer the service under different names. For example, Beyond the Shelf (Pathmark), Special Item Request (Harris Teeter and Endless Selection (Lowes).

The Penn Traffic Co., Syracuse, N.Y., is ready to debut a similar service based on NeXpansion technology in its four banners: P&C Markets, Bi-Lo, Big Bear and Quality Supermarkets. Called Specialty Shop Online, it will be an "exotic supermarket of tempting products," said Marc Jampole, spokesman.

"We always thought the use of the Internet shouldn't be to replace the supermarket but to expand it," he said. "This is what we are doing. It will be an emporium of rare foods and hard-to-find personal care items."

Among the 40,000 items: sweet and spicy cranberry salsa, imported octopus in olive oil, mango gelatin, and organic chocolate Chinese rice drink.