business news in context, analysis with attitude

By Kevin Coupe

In addition to writing MorningNewsBeat each day, Content Guy Kevin Coupe also contributes regular columns to a wide number of publications, including Chain Store Age. As a regular MorningNewsBeat feature, the folks at Chain Store Age have graciously agreed to let us reprint some of these columns.



If I had a nickel for every time someone told me that there was no future in online grocery shopping, I'd probably have enough money to place a pretty healthy order on Safeway.com…or Albertsons.com…or FreshDirect.com…or on Amazon.com's food page. Or, maybe I could buy a half-dozen shares of Amazon stock, since that company continually surprises onlookers not only with its ability to survive, but even thrive and grow.

The fact is that online grocery shopping always has gotten a bad rap, a fact that can be ascribed pretty much to one now-defunct company: Webvan. I'll never forget how just weeks after Webvan went out of business, crushed by its own audacity and arrogance about how it was going to change the grocery-buying world, I went to see the San Francisco Giants play at what was then called Pac Bell Park (now it's called SBC Park, but that's a subject for another column). There, on virtually every cup holder in the place, was the word "Webvan.com," a vivid reminder of a gamble gone bad.

When Webvan crumbled back in the summer of 2001, it sent shockwaves though the online grocery business. After all, Webvan was seen by some as the great hope of the industry; E-commerce Times had written a story just months before saying that Webvan would succeed and last far longer than Peapod, which had just gotten a cash infusion from Ahold but was viewed as damaged goods.

Now, almost three years later, Peapod continues to operate, and Webvan is no more. More impressively, companies like Safeway and Albertsons have continued to grow their online operations, expanding them market-by-market, using their brick and mortar infrastructures to create online operations that are natural and synergistic extensions of what they already have done well. And Amazon continues to expand its food offerings, increasing the specialty items it is offering and, I think, establishing a foundation from which it will eventually be able to offer more mainstream grocery products.

Even more heartening, I think, is the fact that a number of smaller supermarket chains continue to see the value in exploring and expanding the online business. Companies like Harris Teeter, Raley's, Lowe's Foods and Dorothy Lane Markets are using services such as those offered by MyWebGrocer, outsourcing the Internet piece of the business while handling the food and fulfillment segment. It's smart, and it's growing; MyWebGrocer president Mike Spindler recently told me that many of his company's clients are seeing consistent double-digit growth from the channel, and these sales tend to be incremental, not a cannibalization of existing business.

Yes, there's life in this e-business yet.

(Reality check: Forrester Research says that while online grocery sales exceeded $10 billion last year, it represented less than 2 percent of consumer packaged goods revenues for the year. And Jupiter Research believes that grocery is one of the real growth categories in e-business.)

I had a chance recently to chat with Lisa Kent, the former CEO of NetGrocer, which for a long time was virtually the only "pure play" online grocer out there. Lisa, a veteran of CPG companies that include Procter & Gamble and Nestle, left NetGrocer when its funding dried up and was sold to MyWebGrocer; these days, she's doing some consulting for The Luminations Group (www.luminationsgroup.com) and spending time with her kids. But that doesn’t mean she would welcome the chance to return to the dot-com arena.

"I was a believer and I am a believer," she says, but notes that one of the central changes that has taken place in the segment is the virtual elimination of "pure play" operators. "I don't know that there is such a thing as a pure play anymore," she says, suggesting that it is almost impossible to survive "without the tremendous buying power and logistics" that are offered by a brick-and-mortar operation.

What's interesting about NetGrocer - and perhaps an indication of where the industry in general needs to be headed - is the fact that it "morphed into a partnership model" between the retailer and manufacturers. I always thought that the single best idea brought to the table by NetGrocer was its "endless aisle" concept - creating a relationship with Kraft, for example, that allowed it to stock every SKU offered by the company, and becoming the retailer of choice when consumers went to the manufacturer looking for some obscure product or flavor not carried by the neighborhood store.

That "endless aisle" capability eventually became a business all its own, as NetGrocer established relationships with brick-and-mortar retailers that allowed them to make essentially the same offer: "If you want it, we'll get it for you. Period."

That always struck me as the optimal way to use the Internet in the grocery business, especially as mainstream retailers faced tough and growing competition, and more and more retailers embraced the philosophy that in an efficiency-driven world, only the best-sellers ought to be on store shelves. It seems to me that in such an environment, the Internet allowed mainstream retailers to actually work the profitable edges…to offer products and services that many other stores would find too costly or difficult to stock and sell.

As Lisa Kent looks back on her company's evolution, she sees growth that was affected on both ends by Webvan's travails. When Webvan started out, companies like NetGrocer were hurt because people assumed that if you weren't Webvan you didn’t have the answer; when Webvan went out of business, people began to think that its demise was proof that there was no business there.

But those halcyon days of heightened, unreasonable expectations are over now. (Thank goodness.) Now, Kent says, the model would be comparatively simple: build an online service in concert with a brick-and-mortar entity, use the brand name of a local, community-based grocer, and offer something to online shoppers that they couldn’t get at the physical store, including "endless aisle" capability. "This is a business that's emerging," she says. "It is by no means done."

I agree. Several years ago, I can remember being at a Tesco store in the UK when dozens of uniformed young women hit the aisles to shop for orders that had been placed online. It was impressive for all sorts of reasons; they were bright and personable, and clearly they knew what they were doing. And as they shopped, they might as well have been wearing signs that said, "if you'd shopped online, you’d be home or at work now - and we'd be doing this for you."

That's a compelling and persuasive argument. It's one of the reasons that Tesco actually makes money out of online shopping. It's one of the reasons that Safeway's online efforts here in the US are so interesting to watch - they’re partially owned by Tesco.

Yep, I wish I had a nickel for everyone who told me that online grocery shopping had no future. Because the smart bet, I think, is the one that understands that ultimately, online grocery shopping will appeal to our children, kids who have grown up thinking that all books come from Amazon, and who have absolutely no allegiance to traditional, mainstream methods of shopping for food.


Reprinted with permission Chain Store Age (4/2004). Copyright Lebhar-Friedman Inc., 425 Park Ave., NY, NY 10022.

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