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Fill up your grocery cart online

July 30, 1998
Web posted at: 9:46 AM EDT

by Sharon Machlis

(IDG) -- Consumers may be ready to buy books and stocks over the Internet. But how about bananas?

Some retailers are betting that harried, two-career families will forsake picking out their own meats and produce in return for the convenience of online ordering and home delivery.

"You're probably saving money if you factor in the grief . . . of dealing with children in the supermarket," said Jonathan Jackson, an analyst who follows the grocery industry at EMarketer, a market analysis firm in New York. "I think it will take off in the suburbs, particularly."

For now, the market remains small compared with, say, booksellers or brokerages. But analysts predict online grocery services will grow as consumers become more comfortable on the World Wide Web.

EMarketer estimates that just 10,000 households bought groceries online last year and that 90,000 will purchase about $1 billion of groceries this year. But the market is expected to grow to 6.9 million households buying $33.6 billion by 2002. Overall grocery sales were $401.7 billion last year, according to the Food Marketing Institute in Washington.

Peapod, Inc., one of the leading Web grocers, said in mid-July that it is on the verge of taking its millionth order. The company had revenue of $59.6 million last year, with a $9.5 million loss.

Competitor NetGrocer, Inc. in New York just announced a multimillion-dollar deal with Internet powerhouse America Online, Inc. in Dulles, Va. NetGrocer offers nationwide coverage because it doesn't handle perishable produce or meats. Peapod serves about a half-dozen major metropolitan markets, representing 6% of all U.S. homes.

Several Massachusetts companies, such as Hannaford HomeRuns in Auburndale and Streamline, Inc. in Westwood, now serve one or two cities but said they plan to expand.

Niche players

Also, niche players are starting to generate national followings in areas such as kosher food. Kosher Grocer, Inc. in Brooklyn, N.Y., and Kosher Supermarket Inc. in Lakewood, N.J., cater to observant Jews who require special foods not easily found in areas without large Jewish communities.

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Grocers need a smaller number of regular customers to generate substantial revenue than most Web sellers do, said Nicole Vanderbilt, an analyst at Jupiter Communications, Inc. in New York. The average Peapod shopper spends $100 every two weeks -- more than the average book buyer.

However, volume sales can produce efficiencies that let companies lower prices.

Peapod has built its business by partnering with brick-and-mortar supermarkets and having Peapod employees fill orders by picking items from local grocers' shelves. But the company is starting to move to more centralized warehouses.

Warehouse workers who fill Peapod orders carry handheld devices that receive data from the back-end database. The company is betting that will help it lower prices, which vary by location but typically include delivery or membership charges.

While it is more expensive to deliver orders from a centralized warehouse, which is further from most customers than a local store, the warehouse lets "pickers" fulfill orders four to five times faster, said Andrew Parkinson, chairman, president and CEO of Peapod.

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