NEWS & SOLUTIONS 1997-11-03

DEENA AMATO-McCOY

Though supermarket retailers admit that the Internet services they offer customers are still not developed enough to serve as profit centers, the industry is finding other benefits as it explores a variety of marketing initiatives using this vehicle.

An Internet presence, for example, helps retailers uncover customer data that can shape their niche marketing efforts. In addition, as consumer use of the Internet grows, web sites are becoming a cost-effective alternative to more traditional advertising media, such as direct-mail.

Retailers told SN that Internet-based home shopping is one of the best ways to both reach customers and focus on their shopping behavior.

Hannaford Bros., Scarborough, Maine, began its journey into home shopping with the launch of "Hannaford HomeRuns" more than a year ago. The retailer has seen "a significant proportion of orders" through the service, according to Thomas Witwicki, manager of data resources. But it is customer contact, not sales, that is the driving force behind Hannaford's shopping service.

"We are using Hannaford HomeRuns as a way to establish a closer contact with our customers. That is the real benefit -- or direction -- of Internet technology," he explained. "We are interested in boosting sales, but the service allows us to pique customer interest through presentation of our products," and specials.

Home shopping is proving useful as a marketing tool because of its ability to reach a specific group of customers.

"It incorporates promoting brands and customer loyalty, and it offers different avenues of distribution. This is a key for retailers to establish brand recognition," said Internet industry consultant Rudy Nadilo, president and chief executive officer for Greenfield Online, a division of Greenfield Consulting Group, Westport, Conn. "For example, if store A offers home shopping and store B does not, home shopping now becomes a valuable tool for store A to retain customers and maybe even delve into customer-specific marketing," he added.

Another retailer capturing the marketing power of the Internet is Dorothy Lane Market, Dayton, Ohio. The retailer is seeing success by posting its weekly circular on its web site.

"Our customers check our web site to see what specials we are running for the week, and we are seeing an increase in sales, though I cannot say what the increase is," said Patrick Arnold, webmaster. Following the redesign of its site last month, the two-unit retailer also incorporated cross-marketing initiatives to boost its bottom line.

After some research, "we discovered a good percentage of our customers who visit us on-line like wine. So we expanded our site to show specialty wines we carry in our store coolers," he explained. "In addition, we also show some stemware we have available. These are items that some customers may not be aware are in our stores."

This type of cross marketing "seems to work better on-line than in the stores, and we expect it to drive sales," he added.

Promotions similar to those conducted by DLM are helping retailers target their customers, sometimes more effectively than traditional marketing methods.

"We have research that shows some retailers are reaching between 20% and 30% of customers via Internet marketing, as opposed to direct mailings, which typically reach between 1% and 2%," said industry consultant Ken Horner, partner at Deloitte & Touche Consulting, New York.

According to SN's third-annual State of the Industry report on supermarket technology, 8.5% of respondents placed Internet initiatives among their highest priorities for 1997, an increase from 7.1% in 1996.

About 14.5% of respondents also expect to see on-line services to be used for consumer-oriented programs, such as on-line shopping and targeted marketing initiatives, by the year 2000.

Currently, though, both the medium and its audience are still somewhat underdeveloped. "The vehicle could very effectively be used to target specific customers, either by locale or population base," said Hannaford's Witwicki. "That would be an effective way to use the Internet for marketing.

"However, I wonder if the Internet demographics of customers are there yet," he added. "I am not sure if the volume or concentration of customers visiting different sites is at a high enough level to be of interest to retailers for in-depth marketing."

Internet marketing could eventually be the cheapest way to advertise items and have the largest reach of any medium currently available.

"This is another avenue to provide customer service," said DLM's Arnold. "In the meantime, the medium also allows us to advertise our merchandise and target our customers in mass quantities for a very cheap fee, as opposed to relying on the time and costs surrounding direct mailings."

Mike Brown, manager of retail systems for United Grocers, Portland, Ore., agrees: "The Internet allows retailers to provide information, as well as gather information, and they can do so for a reasonable cost.

"Through databases, the industry can examine different market demographics and different user customer groups. Then, through the Internet, we can provide the right specials or even customer-specific coupons instantly," he added. "The technology and utilization of the Web is really changing."

Hannaford's Witwicki agrees. "The potential to reach large customer populations in a very timely way is there. However, the value is going to rely on the customer base accessing your message," he noted. "We need to investigate our customer demographics before devoting our time and resources to rely on the Internet for marketing."

Even as the Internet becomes a stronger marketing tool, the jury is still out on whether customers shopping the Web differ from traditional consumers who visit actual stores.

In addition, it is still undetermined if the two groups exhibit different shopping patterns.

"I do see that Internet customers seem a bit more technologically oriented, and maybe have a slightly higher education and income level. However, those are really the only differences," said United's Brown.

DLM's Arnold does not see a difference, but he believes the retailer can learn more about the customer on-line than in the store.

"The same people who visit us on-line shop in our stores," he said. "However, we get to know their preferences, likes and dislikes through e-mail and on-line surveys. They may not take the time to tell us these things during a shopping trip."

While not all retailers have as close a congruence between their on-line and in-store customers as DLM, Deloitte and Touche's Horner said differences between the two groups are narrowing.

"Education and income levels may be slightly higher [on-line], but the consumers purchasing personal computers are moving down in income," he explained. "The marketplace is changing. If you look at the Internet user of the moment, it is not the 'techno-jock' you saw two years ago. It is your everyday consumer."

Another area of concern to retailers is whether the Internet is serving as an opportunity to supermarket chains or if it poses a competitive challenge.

United Grocers, a 1,900-member cooperative wholesaler, sees nothing but benefit from the power of the Internet. "It is still new to our industry and this is the time to take advantage of reaching our customers and eventually increasing our sales," Brown said. "We need to take notice and get involved."

"The Internet is not a threat to supermarkets if it is integrated into their business. This is another medium, in addition to television, print, direct-mail and in-store promotions. It provides greater communication," said Greenfield's Nadilo.

"I see a bigger threat being manufacturers that may use the Internet as a way to directly ship product to customers -- without visiting the store," he added. "Someone could wake up one day and decide to launch a site where they ask customers to sign up for this type of monthly service."