Buying food by the byte

Comeback: After stumbling their first time out, online grocers are gingerly seeking new markets, including Baltimore.

May 21, 2004|By Andrea K. Walker | Andrea K. Walker,SUN STAFF

Julie Mitchell considers grocery shopping one of life's worst chores. So five years ago, the Alexandria, Va., mother of two began letting somebody else do it for her.

Mitchell, 36, orders her groceries by computer from online grocer Peapod LLC and avoids crowds, long lines and having to lug heavy bags from the car.

"I can do a week's worth of shopping in 15 minutes and have them delivered in a day," said Mitchell, who shopped so much by computer that her young son began pointing to it when the family ran out of snacks. "I think my time is worth at least that."

After a disastrous flop in the 1990s, the online grocery market is making a quiet comeback and expanding in various markets, including Baltimore. Millions of consumers such as Mitchell are buying milk, eggs and other food via their personal computers.

"There was that initial phase when grocers had a tough time making the concept work," said Andy Kish, a grocery analyst with "They've come back more thoughtfully and rolled it out more conservatively."

Peapod LLC, a subsidiary of Dutch retail giant Royal Ahold NV, delivers to 150,000 customers from Chicago to Washington. That is, however, a small fraction of the more than 11 million households in more than 1,000 ZIP codes to whom its service is available.

It plans to expand its area to 240,000 Baltimore households where it will handle Internet orders for Giant Food stores this summer and expects overall sales to grow 25 percent this year.

Safeway Inc., meanwhile, expects its online grocery business to double this year, although it doesn't offer it in the Baltimore area.

Experts said the growth in online grocery shopping has been fueled by faster Internet connections and consumers with hectic lives who have become more comfortable with online commerce.

"It took awhile to get people to buy anything online," said Todd Hultquist, a spokesman for the Food Marketing Institute in Washington. "Books and CDs were some of the first things to catch on. Food shopping is such a personal thing, so it takes longer to catch on."

Many of today's online grocers have also learned the lessons from high-profile Internet grocers that met their demise after over-aggressive expansion.

One of the biggest, Webvan Group Inc., went bankrupt in 2001 after burning through more than $800 million. Others that disappeared were,, and neXpansion Inc.

"We've been slowly climbing to the top," said Elana Friedman, a Peapod spokeswoman. "We don't try to grow too quickly. We want to make sure we have quality in the markets we're in before moving on to the next market."

Many of the online grocery sites failed because they had no experience as grocery retailers, said Phil Lempert, editor of and food trends editor and correspondent for NBC's The Today Show. Also, consumers weren't familiar with their names, he said.

The ones that are proving successful are attached to major supermarket chains that customers recognize, analysts said. Peapod, for example, gets its food from small distribution centers near Ahold stores or larger Ahold warehouses. Peapod also co-brands with Ahold chains. For example, it uses the name Peapod by Giant in the Baltimore and Washington area.

Grocery Web sites have become more sophisticated. They allow customers to store shopping lists. Peapod shoppers can search products by calories, fat content or carbohydrate level.

Despite its gains, online grocery shopping remains a sliver of the industry. Online grocery sales are expected to reach $2.4 billion in 2004, just 0.4 percent of the $570 billion market, according to New York-based Jupiter Research. It is expected to grow by 2008 to $6.5 billion - still just 1 percent of an estimated $641 billion grocery market.

A report released this year by the Food Marketing Institute found that 5 percent of consumers had shopped online for groceries in the past 12 months, up from 3 percent the year before.

Online shopping sites do best among wealthier demographics with families and busy lives, or housebound consumers. It has also taken off in densely populated cities where it is more cost-effective for companies. A truck can park in Manhattan and make deliveries to 20 apartments but may have to drive several places to deliver in the suburbs.

Analysts say grocers still have a long way to go in convincing consumers of the benefits of online shopping. Many are wary of factors such as whether they'll be able to use coupons, if debit card usage is secure and whether produce and vegetables will be delivered fresh.

A survey by Forrester Research Inc. in Cambridge, Mass., found that 54 percent of online shoppers haven't purchased groceries online because they like to see and touch the food they're buying. About 26 percent said online grocery shopping was inconvenient and 29 percent said delivery was too expensive.

Delivery costs, which can range from $4 to $10, aren't likely to go away, analysts said. But there's still a market to be tapped.

"I think there is a huge opportunity to capture consumers to shop online," Lempert said. "There are people all over the place who have not yet experienced shopping online. They still have the fear factor that it will take too long. You still have people who are phobic of computers."

Mitchell, who spends about $400 a month at Peapod, said she likes that she is able to tweak her stored list when she shops. It's also easier to track her spending because the total rises as she adds items to her "virtual" cart.

"I buy the same basic groceries every week," she said. "It's not like I'm making fancy gourmet meals every week."

She still goes to the grocery store occasionally for organic meats and to catch a good sale, but grocery shopping has become a novelty in her house.

"I have two kids and there's just not enough time to grocery shop. I could spend my time doing other things with my kids," Mitchell said. "It's become a verb in our house: `We have to Peapod.'"

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