COUNCIL OF LOGISTICS MANAGEMENT CONFERENCE

NEW ORLEANS -- As GroceryWorks.com gets ready to enter Phoenix and Austin, it will be relying on a "well-architectured" logistics backbone, said Kelby Hagar, president and founder, speaking during the Council of Logistics Management conference here. This is the first expansion of the Dallas-based on-line grocer since it entered into a strategic alliance with Safeway, Pleasanton, Calif., earlier this

NEW ORLEANS -- As GroceryWorks.com gets ready to enter Phoenix and Austin, it will be relying on a "well-architectured" logistics backbone, said Kelby Hagar, president and founder, speaking during the Council of Logistics Management conference here. This is the first expansion of the Dallas-based on-line grocer since it entered into a strategic alliance with Safeway, Pleasanton, Calif., earlier this year, and received an infusion of capital as a result.

The Phoenix and Austin expansions are the first of seven for GroceryWorks, said Hagar. He could not pinpoint a timetable because of difficulty pegging dates to web site variables, but said "Austin is imminent and Phoenix will occur this year, prior to the holiday seasons." Other developments of the GroceryWorks program include:

Constructing "virtual inventory" fulfillment centers separate from Safeway distribution centers in each market it enters.

Implementing new routing software to maximize delivery efficiency.

Testing of store pick-up.

Using data from the Safeway loyalty card programs to enable customers to create "Smart Lists" based on their past purchasing patterns when they sign up for the service.

"We are fundamentally different [from other on-line grocers] in that we were created as a logistics company. We never viewed ourselves as a pure-play Internet company," Hagar said.

"We believed that we were a service provider, and more directly believed that we were a logistics company. We delivered product and that was our primary service to consumers," he said.

Launched in 1999, GroceryWorks spent $4 to $5 million in advertising in its first six months, then researched brand awareness in the Dallas area. While GroceryWorks had attained a 52% brand awareness, it remained far behind the 97% awareness of Safeway's Tom Thumb store brand.

"So what we realized very early in our growth cycle was that we could not keep up with the customer acquisition curve that was going to be demanded in the on-line business, nor did we believe any other pure-play could. We needed to partner with someone who had that brand awareness and that brand recognition to help lower customer acquisition dollars. The way that we intend to do that vis-a-vis our partnership with Safeway is to market the GroceryWorks web site under of the names of the various Safeway brands," he said.

What GroceryWorks brings to the on-line table is efficiencies in the area of fulfillment and delivery. Safeway was very efficient at getting caseloads of merchandise to stores, but never developed an "each-pick" cycle, he noted.

Because the models are so different, GroceryWorks will construct separate fulfillment centers from the Safeway store and distribution facilities in each market it enters. "We will only enter markets as we build the infrastructure to handle those processes," he said.

Based on a system from EXE Technologies, Dallas, the GroceryWorks centers use pick-to-light technology and a "virtual inventory" system that minimizes the amount of stock in the centers at any given time.

"We needed to know on a moment's notice exactly what product was on trucks coming back into our facility, what had been placed and not picked, what had been picked and was on trucks coming back in and the total number of inventory count in our facility. That greatly added to the complexities of the way the business was going to be run and operate," Hagar said.

GroceryWorks is now upgrading the Roadnet routing software it uses from UPS Logistics Group, Baltimore. "It allows us to group orders together in a neighborhood on a dynamic or sequential basis," Hagar said. In the past, customers were given their choice of one-hour windows, but the system could not recognize orders from the same areas. "Through the back-bone of the system, on the servers, while grocery orders are being placed, a series of different routes are being projected, and values are being assigned to different people coming onto the site," Hagar said. People will be given the choice of delivery times close to orders placed by neighbors. "It essentially gives customers the semblance of choice. They have a couple of different options for delivery, and if they don't like those, they can extend out a little longer, but it is not force-feeding a specific time to a customer," he said.

Taking advantage of the vast number of Safeway stores, GroceryWorks is "about to launch a beta test in the Dallas and Houston markets with respect to store pick-up. The expectation is that, if all goes well, we will provide store pickup in all of the Safeway brand locations," he said. The pickup will be handled at the stores' customer service counters, he noted.

One of the unique advantages of on-line grocer selection for consumers is shopping list management, and GroceryWorks plans to take that convenience one step further by integrating the loyalty card programs of Safeway. "You will be able to type that loyalty card number in the first time you come to the web site and it will instantly populate that list of 200 products that your family happens to buy from time to time across the history of your grocery shopping in that particular store," Hagar said.

"As a result, the first time you go on-line, it is not like trying to figure out a new grocery store and spending an hour or two muddling around through all the different aisles and trying to shop on-line with a 56K modem. Instead, you will have one list of all the things you would like to buy and hopefully you will be in and off the site in about 10 minutes. We certainly expect that will aid greatly in customer acquisition," he said.