H-E-B PUTS ITS ON-LINE SHOPPING PLAN ON HOLD

SAN ANTONIO -- H.E. Butt Grocery Co. here has indefinitely postponed its plans to enter the on-line shopping business.The move closely follows the decision of Webvan, Foster City, Calif., to close its Texas operations.The decision by one of the industry's most watched retailers comes at a time when Publix Super Markets, Lakeland, Fla., is expanding its on-line shopping presence in Atlanta and as Schnuck

SAN ANTONIO -- H.E. Butt Grocery Co. here has indefinitely postponed its plans to enter the on-line shopping business.

The move closely follows the decision of Webvan, Foster City, Calif., to close its Texas operations.

The decision by one of the industry's most watched retailers comes at a time when Publix Super Markets, Lakeland, Fla., is expanding its on-line shopping presence in Atlanta and as Schnuck Market, St. Louis, has extended its home shopping and delivery service to its entire marketing area.

H-E-B was to start an on-line shopping and delivery service in the Austin, Texas, market in March, a timetable that had already been postponed from the fall, as part of a major revamping of its company Web site. The Web site is now on target to be unveiled "within the next month," said H-E-B spokeswoman Kate Brown, but "we temporarily delayed the launch" of the on-line shopping service.

There is no timetable for starting the home shopping project. "It has been placed on hold until we decide that it is the right time to launch the service, that it is the right time for our customers," she said. Staff that had been working on on-line shopping, including John Sturm, HEB.com director and general manager, has been reassigned to other projects, but is still with the company, Brown noted.

There were no technical problems that caused H-E-B to curtail the project, she said. "There's soft demand for on-line grocery shopping, which is something we have seen with the pure-plays [Internet-only retailers]. The customer demand for it is just not there right now and it is a soft time for the economy in general, particularly in on-line," Brown said. The downturn in technology industries has hit Austin especially hard, she noted, and this was one more reason for the postponement.

"We looked at on-line home delivery as an extension of what we already do. We are in the business of offering high-quality products to our customers at a great value through our brick-and-mortar operation. We feel we need to focus on that right now," she said.

Industry observers said the Webvan pullout relieved the competitive pressure on H-E-B to do something immediately about on-line shopping. "You certainly never want somebody else to move into your market with a new customer offering," said Meredith Adler, equity analyst, Lehman Brothers, New York. "But I don't think the economics were necessarily ever there. You are just more willing to do uneconomic things if there is a good competitive reason."

"A year ago, everyone was fearing Webvan, and now they aren't scared anymore. That's the bottom line," said a knowledgeable industry source who asked to not be identified. "Webvan was the last scary entity from the perspective of the grocery chains," said James Tenser, a consultant and founder of VstoreNews.com, Norwalk, Conn. "While the grocery industry is not letting go of the on-line proposition, I think they now feel less pressure to move swiftly because there are almost no dot-com competitors left."

Although Webvan has closed its Dallas operation, the company continues to serve nine other markets: Atlanta; Chicago; Los Angeles; Orange County, Calif.; Portland, Ore.; Sacramento, Calif.; San Diego; San Francisco; and Seattle.

With Webvan out of the picture in Texas, H-E-B probably concluded that the on-line shopping project would not drive new business to the stores. "There are certainly plenty of other technology initiatives they need to pursue, including their involvement in procurement exchanges," Tenser said.

This may also give H-E-B the time to work on some infrastructure initiatives that will make the on-line shopping program more effective in the long run, such as customer relationship management. "I see a convergence between the store experience and the on-line shopping experience, all knit together by the next generation of loyalty programs, or customer relationship management," Tenser said.

GroceryWorks.com, Dallas, an on-line grocer which has a strategic alliance with Safeway, Pleasanton, Calif., would have been H-E-B's primary home shopping competition in Austin. "It's my own personal belief that every traditional retailer grocery sooner or later is going to have an on-line channel," said Gary Fernandes, GroceryWorks chairman and chief executive officer. "There are lots of different discussions about how the bricks-and-mortar retailers enter the on-line world. But all the signals still seem pretty clear to me that everyone will be in the on-line business in some fashion or another."

Meanwhile, H-E-B continues to work on the re-launch of its Web site with many new informational components, Brown said. "Those are things like additional information about career opportunities, recipes, shopping tips, nutritional information. People can pull down information about the store closest to them and the management team there. All of the other content pieces will be up and ready to go," she said.