SELLING ONLINE: A WORK IN PROGRESS

Michael Garry

There have always been supermarkets that have offered home delivery of purchases ordered over the phone, but it was always done on an informal basis. The formal home-delivery business, coupled with electronic ordering, didn't start until 1989, when brothers Andrew and Thomas Parkinson launched Peapod.

The following year, Peapod began a partnership with Jewel in the Chicago area, where shoppers could order groceries online for the first time, though most still used the phone or fax. Since 1990 was pre-Internet, Peapod's computer-based ordering required shoppers to install its proprietary software.

Three years later, Peapod branched out to the San Francisco area, partnering with Safeway. In 1996, the company announced partnerships with Kroger in Columbus, Ohio, and Randall's Super Markets in Houston, Dallas and Austin, Texas.

By 1999, with the Internet in full swing, and under the influence of upstart Webvan, Peapod decided to convert from a store-picking model in Chicago and San Francisco to a centralized distribution model. But like Webvan, Peapod didn't succeed with that model and like Webvan, was on the verge of extinction in 2000 when Ahold purchased a 51% interest for $73 million. In a similar move, Safeway announced in April 2000 that it would turn GroceryWorks into its exclusive online grocer, later forming a partnership with Tesco.

Since acquiring Peapod, Ahold has launched store-pick Web ordering services for some Stop & Shop and Giant Food stores.

The Peapod story captures the difficulty that Web-based grocery operations, especially pure-plays, have experienced over the last five years. It's a business model that is still a work in progress, though proponents argue that some version will emerge for the long haul.

The most spectacular pure-play bust was Webvan, which ceased operations in July of last year after a wild ride propelled by Wall Street funding. As SN reported in its July 16, 2001, issue, "no one is likely to repeat the company's experiment in high-tech, high-cost warehouse fulfillment-style e-tailing anytime soon." Even so, the article, said, industry analysts weren't using Webvan's collapse as an excuse to write off the concept of selling groceries online.

Webvan, of course, was far from the only online grocery flame-out. In 2000, such outfits as Streamline, ShopLink and Priceline's WebHouse closed down and HomeGrocer was acquired by Webvan. Last year, HomeRuns.com, launched by Hannaford Bros. in 1996, ceased operations.

Meanwhile, another bloodletting of sorts was taking place in the past few years among companies that enable brick-and-mortar supermarket chains to go online, such as IDS, ShopEaze and Peachtree Network, among others. The only remaining company in this space is MyWebGrocer, New York, whose customers include Harris-Teeter, D'Agostino Supermarkets, Shaw's, Rice Epicurean Markets and several independents.

The clear lesson: Unless your name is recognizable as a supermarket company, don't bother selling groceries online. The exception appears to be SimonDelivers in the Minneapolis area.

Some chains are doing it on their own, without third-party help, notably Albertson's, which has Web-enabled a few hundred of its stores, Publix, and Schnuck Markets.

Mike Spindler, president, MyWebGrocer, remains confident in online selling despite its checkered past. According to Spindler, there are about 500 Web-enabled supermarkets today with picking capabilities, including Albertson's 200, 170 serviced by MyWebGrocer, and stores operated by Safeway, Ahold and others. Their Web sales generate between 0.5% and 2% of total revenues.

He predicts there will be 1,500 such stores in a year, and in five years, "only price operators won't be offering online shopping -- it's the way people will shop." He said that operating an online grocery operation is not only profitable but attracts shoppers who don't use the brick-and-mortar stores.

Manufacturers and retailers are also using the Web to distribute coupons. One source of coupons is five-year-old Valupage.com, operated by SuperMarkets Online, Catalina Marketing's online division. Its coupons are honored in some 14,000 supermarkets. CoolSavings.com, which started in 1994, offers consumers targeted coupons from retailers and manufacturers. And a number of retailers are distributing "U-pons" paperless Internet coupons from planet U, acquired by Transora last year.