Online grocers ripe for growth

By April 30, 2007

When the Internet bubble exploded, online grocers such as Webvan were among the most heralded failure stories. But more mature online shoppers and more savvy grocers are poised to make shopping for strawberries and milk online a

more rewarding experience. Comparatively speaking, selling music, computers and plane tickets online is a piece of cake. Grocery shopping is a whole different ballgame, one that requires handling delicate perishables in hyper-localized markets. No wonder early online grocers lost their shirt building sophisticated warehousing and delivery systems. Most customers loved the convenience. There were just not enough of them to make the companies viable. Fast-forward to 2007 and the outlook is resolutely brighter. In its US eCommerce report released last October, Forrester Research is very optimistic. “Numerous verticals are also ripe for growth, including online grocery, which fell victim to overexpansion during the dot-com boom but may finally be coming of age…the entry of into this market and the imminent arrival to the US of Tesco are two events that will likely inject a newfound energy into this online category,” wrote Sucharita Mulpuru. The Forrester report estimates that groceries totalled $6.2 billion in online sales in the U.S. in 2006. That number is expected to rise to $12.7 billion in 2011. Online groceries would still only represent 2% of the $271 billion Americans are expected to spend buying online in 2011, far behind computers, cars, baby products, gift certificates, video games, music and videos. By the time Foster City-based Webvan shut down its operation in 2001, it had reportedly burnt through more than $1 billion. Less than six months after that much-publicized crash, Bay Area residents could again order groceries online from Safeway and Albertson. “The return of online grocery shopping to the Bay Area marks a giant U-turn for the industry...Both companies intend to minimize costs by relying on existing infrastructure, expanding slowly and taking advantage of their well-known names,” noted an article in The San Francisco Chronicle at the time of the simultaneous launch. is still in business. But Albertson LLC got out of the online retailing game in much of the western states in 2006 while Albertson stores operated by Minneaopolis-based Supervalu still offer online shopping. Albertson LLC quoted a desire to focus on improving the in-store shopping experience. Peapod is the best success story in this category. Launched in 1989 before the explosion of the Web, the visionary service originally required special software and a modem to dial in orders. In February 2007, it announced it had fulfilled its 10 millionth order. The Illinois-based company serves 18 U.S. markets including Chicago, Boston, and New York City. Success came from a brick and click approach as Peapod is now a wholly-owned subsidiary of the Dutch supermarket operator Royal Ahold and develops multi-channel strategies with Royal Ahold-owned Stop & Shop and Giant Food stores. And then there is Amazon which joined the race discreetly in 2006. The ecommerce giant focuses on non-perishables which it ships from its existing warehouses around the country. As one Amazon customer who subscribes to the $79 a year Amazon Prime delivery option noted, “This resulted in the indignity of a poor UPS driver dropping off a box of 124 diapers sent second-day air at no additional expense to us this morning. What is this -- 1999?” It is indeed a hard business proposition for Amazon. Isabelle Boucq for atelier

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