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The Associated Press reported over the weekend about the continued expansion of the Internet grocery business, noting that “it's no longer a question of whether Internet grocery can be successful, but rather of how big it will become.” This is a marked change over the atmosphere surrounding the online grocery business just a few years ago, when was collapsing under its own weight and people were saying that the Internet would never be a factor in how food was sold.

Among the success stories cited:

  • has doubled its business over the last 24 months, and expects it to double again this year.
  • Ahold-owned Peapod reports that it has 150,000 active customers in its system, which includes Chicago and the East Coast; by 2006, according to the report, Peapod expects to nearly double its reach, to areas serving 14 million potential households.

  • New York-based pure play Fresh Direct says that it now has 100,000 active customers, four times the number just a year ago.

Challenges remain. The companies involved in online grocery businesses need to develop enough volume at low enough delivery changes that customers are wooed and the economics work. And not everyone is convinced: neither Wal-Mart nor Kroger have online sales capabilities in food.

Still, Jupiter Research is predicting that online grocery sales will hit $2.4 billion in 2004, 0.4 percent of the total grocery market of $570 billion. By 2008, online groceries are expected to be worth $6.5 billion – just one percent of the estimated total market of $641 billion, but reflecting an annual growth rate of 42 percent.
KC's View:
The fact is that e-grocery isn’t going to take over the world…but for companies that embrace it as a weapon in their stratetic arsenals, Internet grocery shopping is going to be a strong long-term weapon.

We’ve often thought that it is ironic that in an industry where big often slaughters small, e-grocery was to a great extent kept alive by smaller retailers – Harris Teeter, Lowes, Dorothy Lane, and the like – that saw the possibilities and didn’t lose faith.

That’s a good lesson.