THE CYBERSPACE EFFECT

COLE CORBIN

Many retailers, reacting to the fast-growing (though still statistically small) percentage of on-line sales, are discovering that competing in this uncharted arena could change the nature of their traditional type of "physical" retailing as well.

Even as brick-and-mortar retailers vie with cyberspace-only companies for customers, for example, they can use Internet technologies to dramatically lower the cost of their business-to-business communications. Indeed, the Uniform Code Council, Dayton, Ohio, is planning to test UCCnet, designed as a supermarket industry extranet, later this year.

In addition, wholesalers including Fleming Cos., Oklahoma City, and Supervalu, Minneapolis, provide Web templates for their retailer customers to help them establish an on-line presence that can range from simply providing company information and advertising weekly specials to serving as the basis for a home-shopping program.

"We definitely see the Internet as expanding and growing, but perhaps a more accurate term would be maturing," said Shane Boyd, manager of communications at Fleming. Retailers comprising more than 2,000 supermarkets have taken advantage of Fleming's Web services to take at least a few steps into cyberspace, he noted.

Wholesaler White Rose Foods, Carteret, N.J., provides a Web site for its retailer members in the New York City area that allows their customers to access home-shopping services.

"We want to try to recreate the supermarket atmosphere on-line," said George Conklin, vice president of White Rose Foods.

Even with a growing level of Internet usage among supermarkets, the acceleration of on-line sales has taken many distributors by surprise. The Internet's place in an increasing number of households has helped "e-tailing" balloon in the past 18 months. For example, Greatfood.com, Seattle, an on-line retailer that sells specialty food items, reported a 600% sales increase in 1998 compared with 1997.

Such dramatic increases, however, mask the fact that e-tailing made up less than 1% of total sales in 1998, and that few on-line retailers of any kind are actually profitable. However, Allen MacCannell, chief operating officer of the on-line grocery home-delivery service YourGrocer, Port Chester, N.Y., believes the sales retailers are witnessing on the Internet are just the tip of the iceberg.

"Many people are just now getting used to the idea of purchasing on the Internet," MacCannell said. "The real sales boom [on the Internet] is yet to come. This is just a precursor of what will be."

In addition, the speed of change in cyberspace makes competition there more fast-paced than in the physical world. "Real estate on the Internet is different than real estate in the real world," MacCannell said. In the real world, a retailer typically has several months' notice before a competitor may emerge. On the Internet, a competitor can appear overnight.

On-line retailers can also take advantage of greater opportunities to understand not only what their customers buy, but why, when and for what reasons. Retailers can use technology that allows them to track customers' browsing patterns while they shop. They can also determine which Web site a customer visited just prior to theirs and which one the customer visits next, via tracking of links between pages and sites.

It's still not known, however, what role consumers' desire for privacy will play in allowing the use of this type of tracking technology.

While e-tailing may affect traditional retailing, the reverse is already taking place: on-line retailers are changing to deal with the demands of offering groceries efficiently and cost-effectively. Peapod, the Skokie, Ill., home-shopping company, is moving from a fulfillment model where its employees pick product from retailer partners' store shelves to one where the company operates dedicated warehouse fulfillment centers. Peapod has opened three such warehouses since December, in New Hyde Park, N.Y., Chicago and San Francisco.

Streamline, Westwood, Mass., uses a different home-shopping model than Peapod, but also uses a wholesaler as its source for grocery products. The company places three-temperature-zone units in customers' homes, allowing it to deliver a wide range of products, including perishables, without requiring customers to be at home. Other services include video rental, film processing and dry cleaning.

As companies like these develop their own brand recognition with consumers and begin to act more like traditional retailers, sourcing products from wholesalers and manufacturers and operating distribution centers, they could rely less on partnerships with traditional retailers to reach consumers. While the Internet is already having an effect on the way retailers interact with customers, its biggest effect may come in changing the way companies communicate with each other. Many see the Internet as a means to allow virtually all trading partners to use electronic data interchange with relative ease and at a low cost.

Fleming recently put its VisioNet services on the Internet. VisioNet enables vendors and Fleming to post bulletins for promotions and marketing events for retailers, described by Boyd as "a kind of electronic merchandising workbench." Before its launch onto the Internet, VisioNet was only available to retailers and vendors via a private network.

Internet technologies also drove the supermarket industry to develop UCCnet. A pilot program seeks to establish a common standard for an industry extranet.

"[UCCnet] will do two things: It will take advantage of EDI and what it's done, and it will use the Internet technology to allow the smaller companies to have access to UCCnet as well," said Greg Zwanziger, director of electronic commerce for Supervalu, one of six companies currently piloting the program.

The other companies are Wegmans Food Markets, Rochester, N.Y.; Kroger Co., Cincinnati; Ralston Purina Co., St. Louis; Procter & Gamble, Cincinnati; and Frito-Lay, Plano, Texas.

"The plan is to complete the [UCCnet] pilot over the summer," Zwanziger told SN, adding that implementation of UCCnet will not be made available industrywide until the industry finishes dealing with year-2000 issues.

Earlier concerns about the security of sending proprietary documents over the Internet have been addressed, according to Zwanziger. "I would say there has been security software developed to alleviate most concerns [about sending secure documents over the Internet]," he said.

"While it was an issue a couple of years ago," encryption technologies have become so advanced that sending files through the Internet to a trading partner can be one of the safest ways of sending information, he added. Encrypted files are virtually undecipherable by anyone who could potentially intercept the file. "[Using an encrypted file today] is more secure than using a private line that is not encrypted," he said.