STAPLE SALES TO GO CLICK, FROM BRICK

CAMBRIDGE, Mass. -- By 2004, 20% of U.S. households will purchase replenishable groceries on-line, triggering what Forrester Research here called "the biggest channel erosion since suburban supermarkets replaced the mom-and-pop store."In a report released this month by Forrester, analyst Robert Rubin projected that U.S. households will spend $27.1 billion by 2004 on "replenishables" -- food, beverages,

CAMBRIDGE, Mass. -- By 2004, 20% of U.S. households will purchase replenishable groceries on-line, triggering what Forrester Research here called "the biggest channel erosion since suburban supermarkets replaced the mom-and-pop store."

In a report released this month by Forrester, analyst Robert Rubin projected that U.S. households will spend $27.1 billion by 2004 on "replenishables" -- food, beverages, household supplies and health and beauty aids. Consumers spent $1.1 billion on-line for such items in 1999.

On-line sales of replenishments will grow at a rate of 101% in 2004 -- or 30 times faster than the industry's growth rate, Rubin said.

"Households that sign up for on-demand delivery services will quickly begin spending most of their overall grocery budget with these [Internet-based] providers, taking sales right out of the brick-and-mortar channel," Rubin wrote in the report, titled "A New Channel for Old Brands."

Large stores selling "staple" goods will be affected by the change in consumer behavior, he added, with consumers making fewer large purchases at grocery stores. On-line shopping sites offering additional services like dry cleaning, video rental and shoe repair will reduce "impulse" trips to the store, Rubin said.

The growth of high-speed, "always-on" Internet connections will also negatively affect store retailing, Rubin said. Consumers with broadband connections use the Net more frequently and spend 20% more on replenishables on-line than do their dial-up counterparts.

The specter of reduced visits to its stores prompted Safeway's recent pledge of $50 million to acquire a stake in on-line grocer GroceryWorks.com, Rubin said in the report.

Consumer packaged-goods companies should also prepare for the shift, because "the sales generated in this channel come at the expense of brick-and-mortar stores that are their bread and butter," Rubin wrote. Branded CPGs should create basic Web sites promoting their products to consumers and rewarding loyal customers. Managers of products with high brand recognition should partner with replenishers and develop "content" for Web sites -- such as Kraft's "Interactive Kitchen" -- to build loyalty.

Forrester based its findings on surveys of more than 85,000 U.S. household members conducted from late December until early January. It also included results of a study of 10,000 households over a 52-week period.