PLMA TRADE SHOW 2000-11-20 (1)

STEPHANIE FAGNANI

ROSEMONT, Ill. -- Although national brands continue to dominate the segment, manufacturers of private label products can develop signature items unique to the on-line channel to best capitalize on e-commerce initiatives, according to John Furton, co-founder and chief information officer of Internet retailer Peapod.

Furton addressed attendees at a retail trends breakfast during the annual Private Label Manufacturers Association trade show here last week.

"Packaging doesn't matter in this channel; really what we're selling is service," Furton said.

Although on-line grocery sales only constitute 1% of total retail sales in the United States, Furton also told listeners he believes, "It's a good time to pay attention to it and get involved in it. This service works for consumers. Customers adopt this kind of model for grocery shopping."

Peapod has seen business-to-consumer sales grow from $18 billion in 1999 to $35 billion this year, and Furton predicts the company will witness sales of $86 billion by 2003. Peapod-specific private-label results by category show paper products constituting a 37% share of all private-branded goods sold; frozen vegetables make up 29% of Peapod's business; and packaged cheese and margarine and butter follow, each with a 26% share of the e-tailer's store-brand sales.

Furton said trend research indicates that 11 million households will make their first on-line purchase this year. Also, next to PCs and air travel, grocery is the largest e-tailing segment, with about $200 million in current sales, a figure expected to reach $7.5 billion by 2003. Grocery customers are the most valuable long-term customers, he said, with Peapod's average order size coming between $120 and $125.

However, e-commerce stocks are down more than 50% from one year ago and "new funding has all but dried up," Furton said, further adding that little to no venture capital is being distributed to e-commerce start-ups. Some things to keep in mind in lieu of the recent failures of companies like Drugstore.com and Pets.com, he said, are that customer conversion rates must be managed, and marketing is different than sales.

For a grocery-focused e-commerce company to remain successful, it must cater to the unique shopping practices available to the on-line customer base, who can easily shop by cost per ounce, can source by nutrition and can shop by what is on sale, Furton said.