THE VIRTUAL SUPERMARKET

As e-commerce continues to become a viable new alternative format to the supermarket, Center Store items play a larger part in the on-line shopping community, since shelf-stable items can be delivered less expensively than perishable items.Although many are still somewhat hesitant, certain retailers are jumping on the Internet bandwagon, either by running their own Web site, as Hannaford Bros. is

As e-commerce continues to become a viable new alternative format to the supermarket, Center Store items play a larger part in the on-line shopping community, since shelf-stable items can be delivered less expensively than perishable items.

Although many are still somewhat hesitant, certain retailers are jumping on the Internet bandwagon, either by running their own Web site, as Hannaford Bros. is with HomeRuns in Cambridge, Mass., or by partnering with outlets like Peapod, the nation's largest Internet grocer.

NetGrocer, the Austin, Texas-based Whole Foods Markets, and Wild Oats Community Markets in Boulder, Colo., are a few retailers that only offer nonperishable sales on-line.

Streamline.com, Westwood, Mass., sells groceries and perishables, but also brings various services to the table. It will drop off dry cleaning, videos, bottled water, repaired shoes and postage stamps, and will pick up packages to mail at the busy suburban homes that are the company's focus.

Whole Foods Markets debuted its e-commerce site, www.wholefoods.com, in March with 6,000 grocery products. After ordering through the site, products are shipped via UPS from Whole Foods-owned Texas Health Distributors, Austin, Texas.

Similarly, Wild Oats Community Markets, based in Boulder, Colo., launched e-commerce last December, sending out nonperishables from a warehouse in Southern California. Most of its sales are from its private-label grocery products, herbs and gift baskets, according to a spokesperson.

While on-line grocery sales represent less than one percent of the total supermarket volume of $440 billion annually, the number is expected to grow dramatically in the next five years.

On-line grocery stores resemble traditional supermarkets, with aisles to browse and carts to fill. For a virtual shopping experience, SN decided to try Peapod.

But first, SN called the Edwards Super Food Store in New Hyde Park, N.Y., because Edwards, owned by Ahold USA, Atlanta, is a partner of Peapod. When asked how to order groceries on-line, SN was told to go to www.supermarket.com and also to call Peapod directly. The web address turned out to be a software ordering site, with no link to order groceries. The phone number was Peapod's, but it reached the warehouse, a place that does not usually deal with consumers. However, the woman who answered the phone there was quite helpful. "No, it's www.Peapod.com," she told SN.

Once inside the virtual store, SN found an array of items in 20 online aisles that included Back-to-School, Services and Forget-Me-Nots.

Center Store was well represented, with separate aisles for pet supplies, baby items, frozen foods (16 segments), snacks (although some duplicated products found elsewhere), and household.

General Grocery had seven aisles, divided into beverages, canned and bottled foods, cereal and breakfast, condiments and sauces, cooking and baking, dried foods and mixes, and Ethnic, made up of Asian, Greek, kosher, Mexican and Hispanic, and Middle Eastern. Each of these aisles was further segmented -- from as little as three (Middle Eastern: couscous and pita bread) to as many as 17 in cooking and baking.

Hitting beverages first, we found 10 kinds of tonic water, 42 kinds of vodka and 92 types of Chardonnay wine. Certain items were marked with a red price tag, denoting a sale price, or a red and blue "preferred" label, indicating a popular choice.

There were 62 coffee items, none on sale, but several "preferred." Jewel's private label was there, as was President's Choice. In soda pop, one could shop for size, such as one liter, or for type, such as cola. There were 24 items of one-liter sodas; 108 of cola.

SN spent half an hour browsing the virtual aisles and racking up a bill of $60 in only two of those aisles. As with other shopping services, the click of a mouse placed an item in our virtual shopping cart.

Distribution and delivery, however, can be a rough patch for on-line grocers, as SN learned firsthand. Although only 10 miles apart, the SN reporter's house was not in the delivery range of Peapod's warehouse, which left SN merely pretending to virtually shop.

Peapod, based in Skokie, Ill., was founded 10 years ago. In New York, it serves only Long Island and a small section of eastern Queens County, although it recently added 12 zip codes. Its other markets are Boston, where it partners with Stop & Shop; Chicago, with Jewel-Osco; Columbus, Ohio, with Kroger; Houston, Austin and Dallas, with Randall's, in Texas; and San Francisco/San Jose (Bay Area), where its partners are Walgreen's for HABA products, Certified Grocers of California for dry grocery, and Andronico's Markets for meat, deli and produce.

Peapod's fee for shopping and delivery, in San Francisco for example, is $5 an order, corporate spokeswoman Paula Wheeler explained, while in other markets, like Chicago, there are different service plans to choose from, with a modest monthly fee, like $9.95 per month plus $5 per order. Those who shop on-line frequently would benefit from the $19.95 monthly plan, since orders over $60 are free of additional fees.

Peapod had been in the Bay Area market for six years without a competitor until Webvan Group, Foster City, Calif., was launched this June and quickly contracted to spend $1 billion to build distribution and delivery centers in 26 markets.

Despite the unsuccessful attempt at ordering groceries on-line from Peapod, SN did manage to place an order for soy milk and peanut butter with Wholefoods.com, but 10 days later the order had not arrived via United Parcel Service, that retailer's delivery service. NetGrocer, an on-line service based in North Brunswick, N.J., uses Federal Express, with second day delivery to anywhere in the United States.

Peapod, a public company since 1997 trading on NASDAQ, had net product sales of $57.3 million in 1998. For the first two quarters of 1999, sales reached $35 million.

Consultant Paul Kelly, principal of Silvermine Group, Westport, Conn., told SN that although these online outlets save money by not building stores, they tend to get hit with harsh distribution costs. "A traditional store might have an edge, since it could be the distribution center," he said.

In food retailing, web business will never be more than a sideline, Kelly predicted, adding that he thinks a combination of ordering online and then going to the store to get the orders might work best, since people still want to save time.

Others disagree. According to a New York Times business story on July 10, Bill Gates, Microsoft's chairman and chief executive, believes online grocery shopping could account for a third of United States food sales by 2005. Another estimate puts the online grocery market at $350 million now, but predicts it could grow to $3.5 billion by 2002. Hannaford Bros.' estimate is even higher -- $50 billion as reported in the May 3 edition of SN.

"It's on the horizon to consider," said Jeff Geitzen, president of D&W Food Centers, Grand Rapids, Mich. "You've got to pay attention to it."

Joe Ahern, catalog specialist/developer of e-commerce and print catalogs for A.J.'s Finer Foods, Phoenix, said the five stores' Web site "is still basically informational, but I am changing it now to e-commerce."

A.J.'s Finer Foods has home delivery and is looking at the catalog and e-commerce as a way to capture the snowbirds -- who arrive around October 1 and stay to the end of May -- when they are not in Phoenix.

Concierge service will be offered by the new Zagara's, which opened earlier this month in Mount Laurel, N.J. , and e-commerce will follow in the future, said president John Zagara.

"I believe to successfully initiate and integrate e-commerce, you need a live heartbeat behind it so a person can feel good about it," Zagara said. "We intend to begin with home delivery and cultivate that into e-commerce. That will be our gateway into that whole process and format."