PEAPOD SAYS CUSTOMERS LIKE ON-LINE FRESH ITEMS

JANIN FRIEND

DALLAS (FNS) -- When on-line grocery shopping was introduced several years ago, skeptics predicted consumers would use the service mainly to purchase dry and canned goods from beans to paper towels, but that they would balk at buying fresh foods such as produce.

But now consumers appear to be comfortable with the idea of purchasing perishables through the services as well, revealed one source at the International Dairy Foods Convention here.

Bananas and many other types of produce are top-selling items for America's largest and first on-line supermarket shopping service, Peapod, which gets customer orders via computer and then dispatches professional shoppers to buy the goods for home delivery.

The reason, said George Douaire, director of sponsorship and media sales for Peapod, is that company shoppers are trained not only to identify the best produce, but will buy it to customer specifications. "I always order three ripe bananas and three green ones," he said. "I do this every time to see if they will buy them every time, and they do."

During a postconference interview with SN, Douaire said the professional shoppers are taught to determine whether produce is ripe and high in quality, and try to get the customer the best in the store. This is true for other areas such as meat, bakery, deli and dairy, and customers can call a delivery truck to return any unsatisfactory item.

As a result, the development of the on-line shopping business challenges some traditional views, Peapod officials said. Consumers order an average of $112 worth of groceries each time, well above the standard basket purchased in the store, and they rapidly start to trust the professional shoppers to make all purchases including perishable items, particularly when they can specify marbling on meat or ripeness of a cantaloupe, officials said.

"The first time, customers will order a few produce items. There is a natural fear of the unknown -- there is definitely a testing period," Derrick Milligan, spokesman for Peapod, said during the conference.

"During subsequent orders, they are much more enthusiastic" and order more produce than the average grocery customer, he added.

Successes like these have driven the growth of Peapod, which began test-marketing the on-line grocery service in 1990 with 400 households in Evanston, Ill., where it is based, and has doubled its revenues every year while expanding coast to coast.

After two years of testing, the company launched operations in the Chicago area in partnership with Jewel, by displaying the store's products aisle by aisle on computer and leasing space in the back of various stores. Using the same format, the Illinois-based company subsequently expanded to San Francisco and San Jose, Calif., in partnership with Safeway; to Columbus, Ohio, in partnership with Kroger; and to Boston, in partnership with Stop & Shop. It has signed agreements to move into Providence, R.I., and Atlanta next year. In addition, Douaire said Peapod plans to announce moves into three additional markets in December.

So far, the company has 21,000 members and is adding customers at the rate of about 2,000 a month, despite delivery charges and other fees that generally amount to 10% of the total bill. It is projecting a membership of 100,000 in 12 cities the end of 1997, Douaire said.

The company, which had $16 million in sales during 1995, is expected to top $30 million by the end of the year and hopes to reach $1 billion in sales by the year 2001, he added.

Overall, industry analysts are predicting that on-line shopping could account for between 3% and 15% of the overall grocery sales by the year 2000, as the number of on-line grocery services increases. That would translate into anywhere from $12 billion to $60 billion of the total $400 billion in annual U.S. grocery sales, Douaire said.

"This is where the future is," Douaire said. "Peapod is about change."

The state of on-line grocery shopping is moving fast. For example, while consumers currently need a personal computer to order groceries on-line, in the future orders could be made by remote control using interactive television, or people could pick up groceries from a trailer at work after ordering from their desks. "It will get more and more people involved," Douaire said.

Generally, average Peapod consumers are members of double-income, professional families that have personal computers and are short on time. About 70% of the on-line shoppers are women, which bucks a trend toward male domination in other types of on-line services, Douaire said.

Peapod members usually shop from 9 p.m. to 2 a.m. -- which reflects their busy schedules -- and spend 37 minutes on-line. Groceries are delivered from 9:30 a.m. to 9 p.m. and shopping services are available six days a week. Peapod does not shop on Mondays, because more items are out of stock than on other days of the week. Groceries can be paid for by credit card, personal check or electronic fund transfer.

Software is designed for ease of use and special services. For example, Peapod members can sort products by fat or salt content.

"We are not just replacing [traditional grocery shopping]," Milligan said. "We are enhancing it."