HY-VEE SETS STORE-BASED PROGRAM VIA WEB, PHONE

DAN ALAIMO

WEST DES MOINES, Iowa -- Hy-Vee here will start rolling out a store-based Internet and telephone home-shopping service this fall.

Now being tested in 26 stores, the program will be rolled out by market areas to most of the chain's 183 stores, said John Briggs, vice president, treasurer and chief financial officer. "We will roll out first to some of our larger multistore metro markets and then follow that with the remainder of the stores," he said. Some outlying locations in the retailer's far-flung seven-state region will be excluded, he said.

"This industry is searching for what might work best, and we think we have found something that is going to work well for us," Briggs said. "The real question remains, how quickly this is going to grow as a customer preference. If it does grow and becomes extensive, we are going to be right there with it."

Hy-Vee is using a third-party system from HometownGrocer.com, Northfield, Minn. However, the program and its components are identified as Hy-Vee. The retailer provides the personnel and the delivery service. All products will be offered with the exception of some service departments, such as video rental.

HometownGrocer.com has been operating a home-shopping program in Hy-Vee's Rochester, Minn., store for about five years, beginning as a phone-only service and then extending to the Internet, said a source close to the program. Last November, 21 stores were put on the program in the Kansas City area, and four more stores in several Iowa communities were added earlier this year. The retailer plans to add three clusters of stores by the end of this year, and then decide when to roll out the rest, Briggs said. The first market area to be added will be Des Moines, Iowa, a source said.

In the program, customers have the option of choosing phone or Internet ordering, delivery or pick-up, and credit card or check payments. They can also choose to order just grocery items in advance and select fresh products in the store. "This gives customers a menu approach to the store. This makes a lot of sense to customers looking for convenience and service," said a source. Delivery fees will range from $8 to $15 depending on the location, said a source. These fees will be set by the individual store. In the long-running Rochester, Minn., test, Hy-Vee charges $8, the source said. Some deliveries will arrive as soon as four hours after they are ordered, and the Rochester store recently received approval to deliver employee orders to a nearby corporation's parking lot.

Central to the program is custom-designed equipment for store-order pickers that reportedly improves efficiencies, handling up to 10 orders at a time, averaging 12 to 15 minutes per order, said a source. This includes a 40-bag cart that is narrow enough to allow other shopping carts to pass it in the aisles and an interactive Express Shopper device that mounts on the arm of the picker. The device includes a scanner, and audio instructions that tell the shopping personnel where to go in the store and what to pick in the fastest time. It will even tell how much of the same product to put in different orders. The unit also handles price verification through an in-building wireless phone system. There is no front-end checkout with the device and, in some cases, stores do not have to hire additional personnel because of its efficiency, said the source.

Initially, stores start out simply receiving faxed orders, but when the volume from the program increases, the retailer can purchase the special equipment for $7,900, said the source.

"We looked at several different programs and tested programs in a few stores, and this one fits our needs very well. They also have a good grasp of the industry and a good grasp of the technology we use in our stores," Briggs said.

One reason for going with an outside service, rather than setting up a home-shopping service in-house is the relatively small demand, he said. "Right now, in my mind it hasn't grown to the level that would help the in-house investment really make sense. From our test, we found it is a convenience and an additional feature. So we can put our information-technology resources in other places and use this outside service," he said.

"We are doing it because we want to present our customers with the type of shopping that they want. We do have an increasing number of customers that like the convenience of it," Briggs said.

Promotion of the service will be limited to in-store, as it has been in the test, he said. "We are going to leave that to each store director to determine how they can best use that tool. We look at it as another tool for our stores and as a tool for customer convenience," he said.

Big supermarket retailers such as Ahold, Safeway and Albertson's have all endorsed home shopping, the source noted. "They are all making a commitment to home shopping. It has gone from the boutique little warehouse, whose model doesn't make any sense, to where the retailers who have the customer and the brand name are going to provide the service, and I think they are going to win," he said.

Store-based home shopping, as opposed to setting up a separate warehouse, makes sense because it does not cannibalize the existing business of the stores, the source said. "The stores get the benefit of keeping the customer that they already have a relationship with, and the delivery is not any where near the logistics challenge. The homes are only 3 miles to 5 miles from the store, so they can do it in 5 o'clock traffic and never see a freeway," he said.