Online Grocery Battle Spreads to San Francisco

Albertsons.com, the online arm of grocery giant Albertson's (NYSE: ABS), has announced that it will expand its Web-based grocery shopping service into the San Francisco area on March 20th.

The addition of 180 ZIP codes in five Bay Area counties will give Albertsons.com the largest geographic reach of any online grocery provider, with more than 700 ZIP codes in California, Oregon and Washington.

"We're taking advantage of four years in the online grocery sector to expand into regions that make the most sense for the service," said Mike Patton, president of Albertson's Northern California division.

"We are entering markets that have the highest number of customers using the Internet and that have specifically asked for this service."

As with its existing locales, Albertsons.com said it will offer two fulfillment options for San Francisco-area shoppers: door-to-door delivery or in-store pickup.

Supporting Cast

Boise, Idaho-based Albertson's also said it will use its existing brick-and-mortar store infrastructure -- including pricing and inventory systems -- to buttress its online service in Northern California.

This integrated launch and expansion campaign bodes well for the online division's long-term survival, according to analysts.

"The economics of building a stand-alone Internet grocer proved highly problematic," GartnerG2 research director David Schehr told the E-Commerce Times, citing the July 2001 collapse of Internet-only grocer Webvan.

"[Grocers should] use the existing physical infrastructure of a supermarket and leverage the existing cost base for additional revenue."

Personal "e-shoppers" will carry out online customers' orders at existing Albertson's stores, selecting from grocery, pharmacy and dry-goods items.

Food Feud

The new expansion announcement undoubtedly will fuel the escalating online grocery battle on the U.S. West Coast. The San Francisco development comes just six days after Albertson's tacked on 53 ZIP codes in the greater Portland, Oregon/Vancouver area.

Meanwhile, in January, rival Safeway (NYSE: SWY) launched its GroceryWorks.com service in conjunction with UK-based Tesco in the Portland area. And Safeway already has announced its intentions to go after the Bay Area market.

Online grocers serving regions on the East Coast, the Midwest and other areas in the United States include Royal Ahold-owned Peapod.com and MyWebGrocer.com.

"The [online grocery] concept is not inherently bad if it is done the right way," Morningstar.com analyst David Kathman told the E-Commerce Times. "It may be more of a niche rather than a mass market, with a subset of people who are affluent and busy enough to pay for delivery."

Pay To Play

Albertsons.com customers must schedule a 90-minute window for delivery and must pay a US$9.95 service fee. Online shoppers who register for the service prior to March 18th will receive free delivery on their first order, according to the company.

For pickup at 99 physical locations in the five-county region, customers will pay $4.95 per order.

Albertsons.com originally launched in Seattle in November 1999. The company expanded its online service to 146 ZIP codes in San Diego County in October 2001 and added about 400 ZIP codes in Southern California in February 2002.

Albertson's operates more than 2,400 retail stores in 33 U.S. states, including 183 stores in its Northern California division. The company said it realizes annual revenue of about $37 billion.