Safeway Fires Back in Online Grocery Battle

In its latest move to keep pace with rival Albertson's (NYSE: ABS), grocery giant Safeway (NYSE: SWY) announced late Wednesday the launch of its online grocery shopping and delivery service in the San Francisco and San Jose, California, areas.

The northern California debut of GroceryWorks.com -- which is 50 percent owned by Safeway and 35 percent owned by UK-based Tesco -- came just two days after Albertson's launched its own online service in the same locale.

"There is room enough for multiple winners in this space," GartnerG2 research director David Schehr told the E-Commerce Times, noting that he is not surprised to see one-upmanship taking place.

"If it is done in a cost-effective way, online grocery sales are a value-added service," he said.

By leveraging existing supermarket infrastructures, online grocers will continue to reinvent the concept pioneered by Webvan and will move steadily into other locations, Schehr predicted.

On Your Mark

That said, Northern California may be the ripest proving ground for the online grocery standoff, according to analysts.

"[Online grocery sales] may be more of a niche rather than mass market, with a subset of people who are affluent and busy enough to pay for delivery, " Morningstar.com analyst David Kathman told the E-Commerce Times.

Indeed, Safeway is banking on finding such a subset of customers in the Bay Area.

"With the busy lifestyles, heavy traffic and long commute times of the Bay Area, we feel this service will be well received here," GroceryWorks president Steve Frisby said.

Loyalty Points

Safeway will compete with Albertson's to capture the loyalty of consumers, who typically conduct about 60 percent of their grocery shopping at a single chain, Schehr noted.

"Online grocers need to make it easy for shoppers and reward them for shopping with them," he added.

Toward that goal, Safeway said it will cater to loyal Club Card members by granting them online access to their regular in-store purchases. In addition, customers will be able to earn Safeway "savings awards" as well as air miles with United Airlines.

Schehr suggested that redeemable shopping points will be more immediate and relevant than frequent flyer miles. He noted that only about one-third of American adults fly in any given year.

At Your Service

The GroceryWorks Web site presents virtual aisles of frozen foods, dairy products, fresh produce, grocery and non-food items.

One feature lets customers select fruit and vegetables according to their own "ripeness" preferences.

Safeway Personal Shoppers process and compile orders in area stores, and deliveries occur within a two-hour time slot selected by the customer . Online shoppers pay a US$9.95 per-order delivery charge, the same fee assessed by Albertson's.

As an added option, Albertson's offers in-store pickup of orders placed online for a service fee of $4.95.

Shopping Spree

Safeway's GroceryWorks currently operates in Portland, Oregon; Vancouver, Washington; and Sacramento, San Francisco, San Jose and the Pleasanton/Tri-Valley markets of California.

Schehr said the online grocery scuffle is likely to pick up steam on the U.S. east and west coasts and eventually migrate to the heartland.

With 1,759 stores in the United States and Canada, Safeway realizes annual sales of $34 billion.