CAPITAL INTENSIVE

David Merrefield

There has been a lot of tinkering with various Internet-based direct-to-consumer selling strategies up to now. Some are the efforts of supermarket operators, some of third parties picking product from active supermarkets and some of third parties with dedicated distribution facilities.

Through it all, though, has been the vague impression that a lot of it was makeshift. It has been difficult to accurately portray product on the Internet, and more difficult to get display pages to come up on computer screens quickly and reliably. In large measure, consumers interested in home delivery might find it more convenient to just look up product in a conventionally printed catalogue and submit orders by telephone or facsimile.

Then there's the matter of order fulfillment. In some ways, the means by which consumers compile and transmit orders -- whether by Internet, telephone or fax -- is beside the point. The point is that home delivery remains a logistical proposition. Individual consumer orders must be picked, delivery routes must be planned and delivery trucks must be loaded and unloaded.

Look at the experience of Hannaford Bros. Co., Scarborough, Maine. That retailer has an Internet-based home-delivery grocery service, HomeRuns. Consumers order product on the Internet. Orders are picked at Hannaford's Somerville, Mass., warehouse for delivery to shoppers in the Boston region.

At least, such is the plan. As was specified last week, Hannaford's service has attracted just 2,500 to 3,000 customers a week. Some 8,000 are needed to break even. It was mentioned at the meeting that technical limits are hobbling the service: It takes about 50 mouse clicks for shoppers to just register for the service. This simply is asking far too much of potential users. It's hoped that a redesign of the process could reduce that to four clicks.

As for the financial ramifications of the service, it has lopped about 16 cents a share off Hannaford's earnings of $2.21 a share last year.

Hannaford now wants to find a partner to invest capital in the service, presumably to unload a portion of the financial strain and to permit the service to be upgraded, moving it toward profitability. There's a news article about this on Page 4.

The good news is that investors don't seem to be concerned about whether an Internet-based activity produces a profit or not, so finding an investor may be easier for Hannaford than logic at first would suggest.

More generally, many Internet-based home-shopping models could use a capital infusion to permit better development of how the product is displayed and how fulfillment is accomplished. That may be happening. For instance, on Page 1 there's a news article about the fact that Amazon.com has taken a 35% interest in HomeGrocer.com, plowing more than $42 million into that now-regional endeavor. Earlier this year, another investor sank $5 million into the same company.

Could it be the tide has turned and this fledgling industry segment is attracting the capital it needs to move beyond the tinkering stage?