chloeveltman.com > features

Fresh attempts to lure online grocery buyers
5 June 2002

Consumers in the San Francisco Bay Area may be among the most tech-savvy shoppers around, yet online grocery shopping has a history of misadventure in the region.

The widely publicised demise of pure-play online vendors Webvan.com and Kozmo.com as well as the retreat of companies such as Peapod from the area, more or less put to rest the notion of trying to get people to buy Lysol and lettuce online.

But in recent months, traditional grocers Albertsons and Safeway, the second and third largest US supermarkets respectively, have tentatively begun to test the Bay Area appetite for web-based grocery-buying.

In early March, Safeway, which has 130 stores in the Bay Area and nearly 1,800 outlets in the US, launched its online shopping service in the region. Safeway's online offering is managed through web-based home shopping service GroceryWorks, owned 50 per cent by Safeway and 35 per cent by the UK's biggest grocer, Tesco.

Albertsons, the first major US grocery retailer to offer a web-based online shopping service, in Seattle in 1999, launched in the Bay Area two weeks after Safeway. Albertsons operates more than 2,300 stores around the country, of which 140 are in the Bay Area.

Unlike their pureplay dotcom forebears, Albertsons and Safeway are taking a more cautious approach to selling groceries online. Instead of building expensive infrastructure and spending millions on marketing, these traditional grocers are leveraging existing store infrastructure and reaching out to customers on the strength of well-established brand names.

"We didn't want to reinvent the wheel so we looked at what we had in the retail environment and tied in the new front end for the web," says Bob Dunst, executive vice-president and chief technology officer of Albertsons.

Mark Marymee, director of PR for Safeway.com, says the company benefits from the Safeway name, "eliminating the need to spend even more millions of dollars on building brand awareness."

With the advantage of hindsight, many analysts feel this is the best strategy. The failures of the grocery dotcoms resulted from a mistaken estimate of the number of customers who would switch from physical to virtual grocery shopping, says Russell Jones, vice-president of retail practice at management consultancy and IT services company Cap Gemini Ernst & Young. "They built infrastructures to support millions of customers, when the true numbers were, and will probably remain, much smaller."

Andrew Bartels, vice-president and research leader of e-business applications and strategies with Giga Information Group, a Cambridge, Massachusetts-based IT advisory company, agrees. "Albertsons' and Safeway's goals for their online efforts are not to transform the grocery industry," he says. "Instead, they simply want to create an online grocery service that will make a profit - or at least not lose money - by catering to the small proportion of households who seem to be willing and interested in buying groceries this way."

Despite the low customer numbers and the slow uptake, research indicates that online grocery shopping will increase.

A recent study on web grocery shopping habits conducted by Forrester Research, the US-based IT research company, estimates that 4.5m US households bought groceries via the internet last year. Analysts predict this number will rise to 14m by 2006.

In many respects, Safeway and Albertsons offer similar services. After registering, customers log on to Safeway.com or Albertsons.com, and begin browsing the cyber-aisles for goods, which are uploaded to a virtual shopping cart and paid for by credit card. Both grocers charge a $9.95 fee per order, irrespective of size.

The systems remember customer selections from visit to visit - Safeway even links this in with purchasing history data from customers' loyalty cards - so returning shoppers do not have to re-order staple items such as milk and bread every time they log on, thus saving time.

As with Tesco in the UK, both grocers work within their existing infrastructure, fulfilling orders from local stores using a team of specially-trained "pickers" or "e-shoppers". They use handheld wireless devices that list a customer's order and map out the most efficient route through the store as they pick up the goods.

Time-slots

With both Safeway and Albertsons, orders received before 10am can be delivered the same day.

Safeway delivers within a two-hour time-slot; Albertsons, 90-minutes, outsourcing this task to a web-based delivery company, WhyRunOut.com. In addition, Albertsons offers an in-store pick-up option, which, for $4.95, allows customers to order online and come to the store to get their goods.

Although it is too early to tell whether the two supermarkets will succeed in bringing online grocery shopping the Bay Area, Robert Rubin, research director at Forrester, says that the grocers will need to address certain usability problems if they are to grow.

Firstly, if these traditional grocers are to draw customers away from shopping at all-in-one superstores such as WalMart, they should not charge for large orders, he believes.

"Albertsons and Safeway need to make orders costing more than $100 free to customers because they need to increase the wallet-share of their core users," he says.

Another problem is the profile of the Bay Area online grocery buyer. Tech-savvy though he or she may be, Mr Rubin says that the typically affluent, young, single internet shopper living in and around San Francisco is not the most desirable web customer.

"Grocers need to attract families who will spend more than $100 several times a month," he says. "Ultimately, college leavers just don't order with the same size or frequency."