Internet grocers gain again

Online sales are expected to reach $4.2 billion this year

retailers explore new ways to sell food

July 29, 2006|By ROBERT MANOR | ROBERT MANOR,CHICAGO TRIBUNE

Grocery shopping via the Internet, for years an emblem of the dot-com collapse, is coming back to life as businesses big and small experiment with new ways of selling food online.

Industry analysts expect online grocery sales to reach $4.2 billion this year, up 27 percent from last year. Though still less than 1 percent of all grocery purchases, online sales are predicted to double by the end of the decade.

Two major retailers, Amazon.com and Meijer Inc., recently announced their official forays into the market. They, like others, are employing different strategies to find the best way to sell food online.

Consumers can now order nonperishable food in bulk with delivery a few days later. Customers can click their way to exotic items rarely seen on grocery store shelves. And in many big cities, local supermarkets are offering quick delivery of fresh foods and prepared meals.

Internet giant Amazon began rolling out its online grocery business in late May, offering many nonperishable grocery items in bulk supply.

For example, Amazon offers 93 different Kellogg's cereal products. Typical is the 14.8-ounce box of Kellogg's Complete Oat Bran Flakes, sold in a pack of seven for $28.33.

"It's about convenience," said Tracy Ogden, a spokeswoman for Amazon. She said Amazon hopes to take the hassle out of shopping at discounters like Costco.

"If you think about your local Price Club, you wait 15 minutes for parking, then you go in and there are hordes of people," Ogden said.

She said Amazon started out offering 10,000 items and has expanded to more than 14,000.

"We are relentless about increasing the selection," she said.

Although the dot-com bust took down a slew of online grocers like Webvan Group Inc., Skokie, Ill.-based Peapod is a survivor.

"We have been up 25 percent a year, year-over-year, since 2001," said Peapod spokeswoman Elana Margolis.

Seventeen-year-old Peapod began with the original model for online grocery shopping.

Customers placed an order through the Internet, which was packed at a central warehouse and delivered the next day by truck. But after it was acquired by Netherlands-based Royal Ahold NV in 2001, an international grocer, it adopted a different model in other cities.

Peapod teamed with Ahold-owned Giant Food in the Baltimore-Washington area and Stop & Shop in New England, with stores filling Internet orders.

But some things didn't change, such as delivery to the kitchen counter.

Delivery people "will take your groceries upstairs and they will put it wherever you want," Margolis said. "That is really nice for people who are older or have disabilities."

It is also nice for some people with young children.

Vikram Sehgal, research director for Jupiter Research, said Internet shopping works best in cities where physical supermarkets can fill orders from nearby customers.

"That limits the growth of online groceries only to densely populated areas," he said.

Sehgal said he expects online grocery shopping, especially for premium or gourmet items, to flourish, but still remain a small part of total grocery sales. Total grocery sales are approaching $615 billion, he said.

For one thing, online grocers can't really offer much in the way of discounts.

"Groceries are not a high-margin product," Sehgal said. "There is not that much to allow them to undercut the big grocery stores."

A 14-ounce box of Kraft Deluxe Macaroni & Cheese Dinner shows the pricing parity of physical versus virtual supermarkets.

Last week, the macaroni-and-cheese staple was offered for $2.93 by a Jewel Food Store in Chicago, a store employee said.

Amazon was offering the product for $2.85. But it came in a bundle of eight servings for a total cost of $22.80, and consumers would have to place a minimum $25 grocery order to qualify for free shipping.

Peapod was offering the blue and gold box for $2.79. But Peapod's minimum order is $50 and comes with a $9.95 delivery charge.

Supermarket chain Meijer Inc. of Grand Rapids, Mich., is trying online sales of items more exotic than macaroni and cheese.

Consumers can find Patak's Hot Mango Relish condiment, Earth's Best Prunes & Oatmeal organic baby food, or kosher-certified Hodgson Mill Whole Wheat Couscous with Milled Flaxseed & Soy at the Meijer Specialty Food Site.

"This reaches out to a specialty niche" of shopper, said Meijer spokeswoman Stacie Behler. Behler said the site, which opened two weeks ago, offers about 40,000 nonperishable items.

"We thought this would be a nice first step," into Internet sales, Behler said.

Robert Manor writes for the Chicago Tribune.

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