The Rebirth of the Online Grocery

The first wave of online grocery stores is all but gone, but one year after Webvan secured its title as the biggest dot-bomb ever, the online grocery segment is slowly reinventing itself. Brick-and-mortar supermarkets are cooking up some early success with hybrids of the original model.

Indeed, it is a new era for online grocers.

“Webvan pursued a warehouse fulfillment model and failed,” Giga Information Group analyst Andrew Bartels told the E-Commerce Times. “Albertson’s and Safeway are finding success with an in-store fulfillment model.”

More About the Model

Albertson’s originally launched its online grocery service in Seattle in November 1999. The company created a Web site and tied the Internet service to existing pricing and inventory systems.

While the Peapods and Webvans of the online grocery world were racing to market with half-baked models, Albertson’s took the slow and steady route. The result is that the company matured its model of fulfilling online orders from select regional stores and weathered the storm that drowned the pure-play dot-coms.

“By bringing our brick-and-mortar investment to bear on the online portion of our business, we have evolved our online model to take advantage of our retail grocery expertise, brand recognition and existing infrastructure,” said Dennis Bassler, senior vice president of marketing for Albertson’s Southern California division.

Partnering for Success

Meanwhile, Safeway is taking a similar approach — with a twist. The company is offering online grocery service through GroceryWorks, an Internet-based home-shopping service that it co-owns with Tesco, a UK food retailer.

“The online grocery business in the U.S. has dramatically changed in a few short years,” said Vasant Prabhu, Safeway’s president of e-commerce businesses.

Successful online grocery models, noted Prabhu, will come from brick-and-mortar retailers with well-established brands, purchasing power, and existing distribution infrastructures.

New Breed of Shoppers

Just as there is a new breed of online grocers, there also seems to be a new breed of online grocery shoppers.

Webvan attracted fairly young, affluent shoppers seeking time savings, according to Nielsen//NetRatings. The demographic profile for Albertson’s and Safeway customers indicates that they, too, are fairly young, but there is a higher percentage of females and a lower percentage of affluent shoppers.

According to Nielsen//NetRatings, there is also a higher concentration of online shoppers on the West Coast, which is the prime target area for both Albertson’s and Safeway.

The careful planning of test-market locations is paying off for the new leaders in the online grocery space. Nielsen//NetRatings’ statistics for May to June show Albertson’s and Safeway had audiences of 576,000 and 463,000 shoppers, respectively.

Holding Their Breath

Still, analysts said that many national grocery chains are holding their collective breath, awaiting the fate of Albertson’s and Safeway in a troubled market. And it is going to take more than a new model to remove the stigma from online grocery shopping.

“Online grocery shopping has to be as convenient — if not more convenient — than going to the grocery store,” Nielsen//NetRatings e-commerce analyst Dawn Brozek told the E-Commerce Times.

That, she said, means the interface must be user-friendly. Online grocers must offer search engines that streamline product selection and shopping carts that quicken checkout times.

To survive and thrive, analysts also recommend that online grocers not only give customers the ability to select delivery times, but also offer them a product mix that includes nonperishable goods that can be delivered when the customer is away from home.

The Rebirth

The long-term outlook for the online grocery market gives players a worthy prize for which to compete. Forrester predicted that the number of households doing at least part of their food shopping online will grow to more than 14 million in the years ahead. And Jupiter predicted annual sales will top $11 billion within several years.

But many analysts are taking those numbers with a grain of salt, no matter what the model. “We are not seeing the volume of online grocery sales we expected to be seeing,” said Bartels. “But it will come back again.”

Likewise, Brozek thinks online grocers are here to stay, in one form or another. But brick-and-mortar supermarkets are not going anywhere, either.

“For many reasons,” she said, “there are customers that like to shop in the store and will never be converted to online grocery shopping — even if they have online access and that service is available in their area.”

14 Comments

  • Analyst Dawn Brozek said that "online grocery shopping has to be as convenient — if not more convenient — than going to the grocery store". But what if people can’t be home to receive delivery, or if they must hang around home just waiting for the driver — is that convenient? …Last year, the market research firm Ipsos-Reid asked 1,000 people the following question: "If nobody in your family could be home to receive home-delivered goods, would you be likely to even order them in the first place?" 78.6% said "no"! Similarly, a recent research report from GartnerG2 found that "many people would like to shop from catalogs, but don’t because they are out at work during the day and unable to make arrangements for home deliveries". …To really be convenient, I believe that getting the groceries ought to be just like getting the mail. Several years ago, in a Wired magazine article, Nicholas Negroponte said: "Among other things, we need to rethink the concept of a mailbox…the mailbox of tomorrow ought to be a cubic yard, with the potential for refrigeration." And in an interview in the April ’00 issue of "Victoria" magazine (p. 34), Esther Dyson said: "You really shouldn’t have to go to the store to get milk or other things you use every day, like toothpaste. If you live a reasonably steady life, these things should come by subscription." "The return of the milkman?" asked the interviewer. "Exactly," said Esther. "But instead of a milk box, you’ll have a large lockbox with a security combination. Every delivery person will have his or her ID, so you’ll know who put what in when."

    • Those are very good points when it comes to store grocery shopping. Standing in long lines with a slow cashier who talks too much is very irritating to me. If i can eliminate the long lines, taking the groceries to your car taking them into the house and then putting them away I AM loving myself! There have been times when I have passed something I needed in the store and it’s a pain to back track and retreive it. Or I’ve gotten home and forgot an item and do not want to go back to the store to get it. Making a call and having someone bring the tiem(s) to me is a much better feeling. There have been times when I have a family gathering or bar-b-q and run out or forgot to get something and hate to leave my guests or have someone else leave to get it. A phone call or jumping on the internet and ordering it seems more convenient to me. Even if I have to pay a little more for it.

      • my concern on this issue would be what do you do if someone orders ice cream? The box would have to be refrigerated for many grocery items. Calling ahead to your customer is a way to assure that the customer is home. If no answer call customer back before the hour you are to deliver is up to see if customer is home. Get more htan one contact number for the customer.. Let your customers know right off that if they are not home when you deliver and you make several attempts to contact them and are unsuccessful the customer will need to reschedule or pick their order up at the store. Staying in contact with your customers is a necessity and shows you care.

        • If synchronizing delivery is the problem, then why synchronize? The USPS doesn’t have a timing problem because they deliver to mailboxes — so why not enable grocers and everybody else to deliver to bigger/more functional types of mailboxes?

          • This is a good point. I will also have a service such as this. The customer can send order from internet, drop off a list to have later picked up, fax an order or call it in. they can drive thru with their customer number and their name, park in adesignated spot and an employee will put groceries right into their automobile. Never having to get out of your vehicle to get groceries. There is also the cafe aspect where you can come in and kiosk your order and have coffee etc. donuts etc. while you have your groceries packed and put into your automobile. Not only will we offer delivery but putting more than one service together has the potential to pull consumer’s toward the business

          • I AM trying to start an online delivery grocery. Customers will be able to drop off a list to us, fax us, internet. I Feel delivery is good for people who cannot leave their homes, who have care givers who shop for them, mom’s and dad’s who do not want to take kids into the store and when weather is bad, noone wants to brave the elements. Delivery can be efficient if you leave an hour window for pick up. This is what I AM planning. If a customer is not home when delivery arrives, a cell phone contact number should be available. This way if the customer is running late to get home they can call or delivere can call and see if they need to wait on the customer for a few minutes or if customer wants to just drive thru and pick their ordr up. I feel that the delivery aspect is coming back into play and the internet is a good tool for this.

  • While research studies may show that consumers like the idea of having their groceries delivered to their homes, I don’t think that the home delivery grocery market will ever evolve into a commonly used service. I’ve worked through the service’s operating cost, and there’s just no way that any home delivery service company can make a buck, at least not without charging hefty delivery fees. An alternative service might be a supermarket-sponsored pickup service whereby consumers would order their groceries online from one of their local supermarkets, drive up to the store’s pickup area, present a pickup conformation number, and then simply drive home. It’s not quite as convenient as home delivery, but it sure beats the hassle of in-store shopping and waiting in long checkout lines.

  • While research studies may show that today’s more time-pressed consumers like the idea of having their groceries delivered to their homes, I don’t think that the home delivery grocery market will ever evolve into commonly used consumer service.
    I’ve studied the numbers and there’s just no way that any of the home delivery service companies can ever make a buck, at least not without charging their customers hefty delivery fees.
    The service’s main downfall is that it presents timing distribution problems for grocery delivery companies and for their customers as well.
    A much better service would be a supermarket-sponsored pickup service whereby consumers would order their groceries online from one of their favorite neighborhood supermarkets and then simply drive up to the supermarket’s curb-side pickup area, present an order confirmation number, and then simply drive home. – Jim Pflaum

  • The future is secure as long as the online companies are able to truly figure out who their customers are. There are reasons why people buy online, so you need to focus on those reasons. For example, people buy cigarettes, bras, or condoms online from http://www.BuyaCondom.com because they are more comfortable with having these products delivered directly to their door.

  • A huge cost driver for Webvan was delivery — and delivery is still driving way too high of a cost for Safeway, Albertson’s, and everybody else. For example, Webvan couldn’t make more than about 3 deliveries per hour; yet if only they could have made 6, their cost per delivery would have been cut in half. …To solve the problem, online grocers (or UPS, FedEx, USPS etc.) should install a delivery box outside of everybody’s home for free, then charge small access fees to other delivering companies. As a result: (1) Home-delivered orders would soar since people wouldn’t have to be home to receive them; (2) Increased delivery density would decrease delivery costs, and delivery cost savings alone would justify box access fees and yield a high ROI to box owners; and (3) Online/consumer-direct retail would become economically more efficient than conventional retail.

  • Good article.
    Consumer enthusiasm for online grocery shopping with either delivery or pickup fulfillment has never wavered.
    It is great to see big players such as the Albertson’s, Ahold (via Peapod), Publix and Safeways of the world join in the online arena. While Albertson’s has done this for a while, their early models in Dallas and Seattle were not very successful.
    The real brick-and-mortar pioneers were grocers such as Lowe Foods in North Carolina who have done this for five years now, or independents like GA Foods in Indiana, who have been in-out and back in the business for more years. They bumped along, stubbed toes and discovered (and continue to discover) better ways to interact successfully with their customers.
    There is a huge AM ount of consumer demand and success for this type of service with retailers such as D’Agostino, Lowes Foods, Sentry, Shop-Rite, SUPERVALU, Unified Western Grocers, Harris Teeter and many others. They have figured out how to MAKE money at the business without spending tens of millions of development dollars buying up old pure plays.
    Of course, I AM a bit biased in my view, as these are all clients of MyWebGrocer.

  • The article was a review of the current industry and omitted some of the package delivery services and, I believe, was in error dismissing Peapod as half-baked.
    "Half-baked" is actively supported by the Ahold Company, its owner, and is offered by Ahold companies in my city of Columbia, MD, much of the higher income areas of greater Washington, DC, areas of Connecticut and New York, and in Chicago. It is still actively promoted by these companies. Reports of its death are exaggerated, yet I cannot see much innovation from the old Peapod model.

  • There were two glaring omissions from the article, Netgrocer.com, 1996 & PublixDirect.com, 2000. Although PublixDirect.com is not in all markets (no pun intended), I think they offer a great front-end and very easy checkout process. Their prices are slightly higher, but to avoid the manual tediousness of the typical grocery shopping experience and the fact that produce is usually superior to that found in their stores, the prices are well worth it. As long as these sites are up and running, I’ll let them do my grocery shopping & delivery!!

  • interesting perception. after having been deprived of webvan’s superior online interface and grocery offerings, we now have the experience of dealing with the carefully cultivated business models of safeway and albertson’s.
    i think that both benefitted (got the overflow)
    from those who used webvan and peapod.
    safeway’s online experience leaves a lot to be desired, except that they have multiple delivery hours available (a plus). albertson’s unfortunately has taken the liberty of increasing their prices, so it is actually less costly to drive to the store to shop.
    webvan had a novel approach not seen on the west coast, and i give them extra points for trying.
    the other two grocery stores have been around a very long time, so any extension of their service(s) has been through observation with a lay-in-wait attitude, not due to any brilliant business maneuvers.

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