On the surface, the grocery business seems to be a natural for e-commerce. After all, who wants to run up to the Safeway every three days to buy milk, butter, and detergent when you could have them all delivered to your doorstep - and even put away - with a few clicks of the mouse?
There are few corners of e-commerce where the chasm between what companies should be doing and what they are doing is as in great as the online grocery world. A handful of startups such as Information Neighborhood and Oncart already have bailed out, while most of the survivors are tumbling around like melons on a checkout belt.
Phil Kiracofe, 26, found out the hard way. In 1996, he and some partners launched Information Neighborhood, a grocery-delivery service with electronic ordering, in Tampa, Fla. Working with Publix, the giant supermarket chain, the company acquired a phone-and-fax ordering service to gain 3,000 customers. But it then stalled because the retiree-heavy area lacked a critical density of PC users.
When Information Neighborhood moved to Jersey City, N.J., there was an ample base of potential customers - but retail partner A&P didn't offer adequate marketing support. Though the company still technically exists, Kiracofe lost more than $100,000 of his own money.
Despite a presence on America Online, NetGrocer, the largest online grocer, had to scrap a planned IPO last fall and lay off more than half its staff of 80 people and has raised delivery prices twice in the last six months just to stay afloat. Meanwhile, publicly held player, Peapod, is as one of the few switching strategies from "store-picking" of merchandise to serving customers out of a central warehouse and backsliding financially in the meantime. Also blue chip-financed Streamline has been making a go of it.
One big problem: Many of the top bananas in grocery retailing aren't interested enough to commit. A&P, the Montvale, N.J.-based $14 billion supermarket, is dipping a toe into the water; it's part of coupon service SuperMarkets Online, and some shoppers can order A&P takeout online via CyberMeals. "We're treading lightly," says Andy Carrano, vice president of marketing and corporate affairs. But they're coming on, slowly by steadily.
Still, there are trailblazers aplenty because the potential for this business, everyone agrees, is vast. A recent study by Andersen Consulting predicted that the number of U.S. households using online outfits to buy food and other household goods and services will grow from fewer than 200,000 two decades ago to 25 million now to 50 million by 2020. "Groceries are a $500 billion-a-year business in this country," says Fred Horowitz, the interim president and CEO of North Brunswick, N.J.-based NetGrocer. "If online grocers get even 1 percent, that's a billion-dollar business!"