By Keith Regan E-Commerce Times
03/15/02 4:08 PM PT
The prevailing wisdom is that Internet grocers are safe when under the wings of
brick-and-mortar stores. I say they're in danger of being pushed out of the nest.
We're on a mission to make the Internet safe. We're Kaspersky Lab. We build high-quality endpoint and server security solutions that minimize your exposure to Internet threats. We're setting a new standard for real-time protection with the most resource-efficient anti-malware technology available. Learn more.
Isn't it great to see a new round of online grocery battles breaking out? No one is more
hopeful than I that the outcome will be different this time. But is that just wishful
thinking?
The key idea is supposed to be that this time it's different. The brick-and-mortar
grocery chains expanding up and down the West Coast have a new model -- one that relies on
existing stores rather than on expensive distribution networks built from scratch.
Sounds good. But fast-forward a bit, and it still appears that this war will end like a
late-night poker game. No one has a winning hand, so whoever is most willing to keep
upping the ante by putting more money on the table will walk away victorious.
Proof Pudding
The new online grocery services operated by Safeway and Albertson's, among others, are
still fairly new and therefore difficult to judge in terms of profitability. But Royal
Ahold and its Peapod subsidiary provide a foundation on which to build an argument.
Ahold's recent earnings announcement was all good news, except for the Peapod part of the
picture. It seems that Peapod lost US$32.2 million in 2001, leading Ahold to make
statements like "excluding Peapod's loss" to show that its core business is doing fine.
In fact, the company's CEO gave a speech in which he noted that "outside of Peapod, we
have been able to achieve increasing operating margins."
In other words: Thanks a lot, Peapod.
Now, Ahold may need more time to integrate Peapod. It is promoting the service heavily in
some areas, and no doubt 2002 will be a better year on that front. But can Ahold push
Peapod all the way to profitability?
Canned Response
Tesco, the British company working with Safeway on its online service, has turned a
profit in Great Britain, so a precedent exists. But the United States isn't England, and
it's going to take some tweaking to get the system right.
How much time will it take to perfect the tweaks? No one is willing to make that kind of
prediction anymore. After all, the way forecasters saw it a few years ago, we were all
supposed to have everything we needed delivered to our doors by now.
But time is the important ingredient. I'm sure the Webvans of the world still believe
that if they could have bought themselves another two or three years, things would have
been different.
Now, it's happening all over again: The company that can hang on and weather initial
losses, spend money on promotion and remain confident about the long term will win.
Fresh Produce
And the amount of hanging on that will be required is directly tied to whether the new
breed of online grocers moved too quickly. They no doubt sensed a vacuum created by the
Webvan flameout and wanted to chase Webvan's wired customers. But is it possible that
they miscalculated as well?
Ahold's terse Peapod statements seem to indicate that grocery giants aren't used to
having Internet divisions dragging down their margins. Like Ahold, Safeway and
Albertson's are not likely to put up with that for long.
Ringing It Up
The prevailing wisdom is that Internet grocers are safe when under the wings of
brick-and-mortar grocery stores. I say they're in danger of being pushed out of the nest
and told to learn to fly before they crash.
The chicken of online grocery service came before the egg of consumer demand once
before. Let's hope it's not happening all over again.
What do you think? Let's talk about it.
Note: The opinions expressed by
our columnists are their own and do not necessarily reflect the views of the E-Commerce Times
or its management.
Letters: 
Talkback: 
