FMI 1998 ANNUAL CONVENTION 1998-05-11 (8)

DEENA AMATO-McCOY

CHICAGO -- As supermarkets continue to experiment with on-line shopping strategies they are quickly learning that real success in this channel may only come with a shift in thinking about such things as service fees and order-fulfillment practices in place today.

Virtual retailing will come into its own in a big way and the winners will be those who first invest time, money and resources to understand this evolving channel before devising a strategy.

"This is going to happen," William Holsworth, executive vice president of business development for Ahold USA, Atlanta, said of virtual retailing during a panel discussion at the Food Marketing Institute's annual convention here last week.

"It is going to take a good deal of effort, research and understanding for retailers to develop a successful home-shopping initiative. It will happen, and we think we need to be in the game."

Ahold is already working with Peapod, Evanston, Ill., to provide home shopping in its Quincy, Mass.-based Stop & Shop units in Boston.

Among the new ideas retailers will have to accept is that fees for on-line shopping will not be acceptable in the future.

"Service fees are a barrier of the service, and today all services charge some sort of fee," said David Friedman, an associate partner at Andersen Consulting here, who also spoke at the conference. "This doesn't play well because consumers recognize they are not charged to enter their favorite grocery store, and they do not understand why they should be charged to shop on-line.

"We expect these fees to go away," he added. "As the number of users increases, service providers will have the opportunity to reduce fees."

Brian Crockett, senior manager of food and packaged goods practice at Andersen Consulting, said fees will drop away because more efficient order-fulfillment practices will yield savings significant enough to make fees unnecessary.

"We expect to see consumers spending as much as $85 billion through this channel by 2007," he said during the session. "In the long run consumers do not want to see fees. If this service proves to be as efficient as we believe, the channel will generate enough revenues that fees will not be necessary in order to make retailers, wholesalers and other service providers profitable."

Friedman said that as retailers become more savvy with electronic retailing they will gain new opportunities to maintain and enhance customer relationships. "Retailers have a big advantage because they can leverage their skills of category management, their relationships with manufacturers and customer loyalty data.

"The 'current customer' is an ace in the hole for the existing retailer," he added. "Consumers told us their first choice is to receive this service from their existing retailer. This gives retailers the opportunity to capture and retain that consumer by proactively offering a consumer direct service."