ON-LINE VENTURES IN THE DOGHOUSE FOR NOW

Dan Alaimo

Someone said that the pace of change for Internet ventures is like the old concept of "dog years." They age about seven times faster than other businesses.

To casual observers, it might seem that on-line grocery shopping is a dog that got old really fast this year and is nearly dead. There's some truth to that, at least when it comes to Internet-only retailers.

Reviewing news clips from the beginning of the year, companies like Streamline, ShopLink, HomeGrocer and others were getting ready to take over the grocery business. Traditional supermarket companies were being urged to run for cover, and many sought it with the name-your-own-price strategy of the Priceline WebHouse Club. Then the financial community soured on Internet retailing due to lack of profits, and now all of those names are fading memories. Others, like Peapod and GroceryWorks, aligned with large traditional supermarket chains, and Webvan appears to have a measure of staying power.

Still there are some very optimistic sales forecasts for on-line groceries. One, out now from eMarketer, New York, predicts this market will grow 3,360% from 1998 to become a $33.6 billion business by 2002, with 15% to 20% of U.S. households ordering on-line by 2007. Other projections are as low as $10 billion by 2003 (Pedi, Moesta & Associates and Willard Bishop Consulting) and $14 billion by 2004 (Forrester Research), with others ranging much higher.

At the end of 2000, the urgency to establish on-line shopping programs is gone and many are doubting whether there is a viable business there at all worth pursuing. Some companies are pressing forward. But like Supervalu and Hy-Vee they are choosing easier and less costly ways of entering the business, such as outsourcing the technical aspects of the program.

There is a business here and potentially a significant one, though maybe not as significant as some still think. Depending on your age, you may not know that home ordering, in whatever form, has long been a part of the business. From my childhood, I recall that the grocery store run by my grandfather, and later by my uncles, always took phone orders and made deliveries. And that was long before the days of the technologically sophisticated, time-crunched, wireless, two-income families who have come to regard going to the supermarket in their four-wheel SUVs as an onerous chore.

In places where on-line ordering of groceries has been implemented, shoppers have embraced it enthusiastically. Looking outside this industry, Amazon.com has changed the book-buying habits of millions, providing reviews and home delivery. The food business is different yes, but I'm not sure by how much. Will people have an aversion to ordering produce on-line? I know I take no special pleasure in picking through a mountain of apples and would be glad to trust experts to do for me -- at least until they get it wrong. Making a shopping list -- another automated benefit of on-line shopping -- is an ongoing source of family contention.

So is this a dead dog? Hardly. It's a business that has just passed through its first very turbulent phase. Consumer acceptance will continue to build, and the entire on-line shopping arena is poised now for slower, more rational growth. Traditional supermarket companies should continue to explore it and test the waters, because they are in a fine position to take advantage of this business, adding it to their repertoire of customer services. Profits will come to those who apply themselves to the logistical side of the on-line business.

With their locations, traffic and visibility, supermarkets can afford to come a little late to the party.