The impulse nature of nonfood and its often long buying cycle raise questions about the viability of nonfood products sold through the evolving consumer-direct home-shopping channel.
There is little doubt that buying merchandise direct through electronic media will eventually have an effect on supermarkets' future business, especially with chains and wholesalers like Byerly's, Shaw's Supermarkets, Quality Food Centers, Hannaford Bros., Randalls, Vons' Pavilion stores, Stop & Shop, Supervalu and Fleming experimenting with home shopping.
The Consumer Direct Cooperative, a study organized by Andersen Consulting in Chicago last year, which involved 18 brand marketers and retailers, projected that on-line retailing would capture an 8% to 12% share of major market grocery sales over the next seven to 10 years. That percentage is equivalent to $60 billion to $85 billion in annual volume, more than the current business of club stores and supercenters combined.
The question SN raised with industry executives is: what role will nonfood merchandise play in direct home shopping?
"We've done a lot of research on consumer direct shopping," said Fred Schneider, executive director for Smart Store at Andersen Consulting, Chicago. "To make it really work, you need a good mix of both food and nonfood items, just because of the margins."
Margins are on the minds of many retailers who have invested in consumer-direct home shopping as they struggle with what mix of products to offer. For one major retailer, creating a virtual store may allow it to favor high-margin or heavy-rotation items.
"If customers want products delivered to their houses professionally, those products are going to be items that we make 25% or 28% gross profit on," Schneider said. "For us to sit there and offer generic green beans, on which we're losing 2%, is the wrong way to go about it."
In its Distribution Trend Report last year, the School and Home Office Products Association, Dayton, Ohio, made reference to electronic commerce as providing future sales potential for its members.
"We're not talking about an extremely viable channel at this particular point in time," said Steve Jacober, association president. He estimated the Internet audience at 3 million to 6 million households and put traditional retail purchases at $100 million to $200 million.
"Now as consumer comfort with the Internet increases, there's one school of thought that believes their comfort with shopping via technology will increase, too. It's fairly safe to assume that consumer comfort in shopping for our product category and for our industry will increase as well. But it will never replace traditional retail," Jacober added.
Dave McConnell, vice president of communications at the General Merchandise Distributors Council, Colorado Springs, Colo., pointed out that nonfood seasonal and impulse items depend heavily on in-store display opportunities and that his association is very concerned about the negative effect of consumer-direct shopping because such items are not generally a planned purchase.
"We have very impulse-oriented products and we've got concerns," McConnell stated.
"A lot of choices consumers make within a food store are made when the consumer is right there -- especially for housewares, like spatulas and baking pans," added McConnell. Schneider also mentioned how consumer-direct shopping will affect the characteristics of impulse vs. necessity purchases.
"Those suppliers that have a product that is more impulse-oriented have a greater need to understand these new channels," Schneider said. "The dynamics of how their product is bought is so dependent on that tactile interface in-store."
The health and beauty category lends itself to home shopping more than many of the other general merchandise categories because the purchase frequency is far greater. Also, consumers tend to be more aware of brands, noted Michael Sleeper, president of Imperial Distributors, Auburn, Mass. Imperial has agreed to distribute mostly high-velocity HBC through Shop Link, Westwood, Mass. Shop Link is currently developing a CD-ROM-based home-shopping program that could be launched as early as June.
"Many general merchandise items are less branded and require more touching and feeling than shampoos, mouthwash, toothpaste and deodorants," said Sleeper. "You know branded goods. Scope is Scope. Johnson & Johnson is Johnson & Johnson. With kitchen tools or gadgets, you may or may not know the quality of the product without actually seeing it," he added.
Pharmacy needs have been addressed directly for many years, with prescriptions being filled and over-the-counter medications ordered over the phone and, in many cases for prescriptions, through mail order.
"Pharmacy makes sense," said Jacober. "Going to the pharmacy is easily supplanted by going on-line. But then when you look at the largest demographic section of the consumer population for pharmacy needs and see that it's older individuals who have less of a comfort level with this technology, it raises some questions," Jacober said.
The biggest obstacles to the emerging consumer home-direct market seem to be the speed of the technology and the consumer comfort level, especially on the security end.
"Once it gets moving," said Sleeper, "consumers will be conditioned to buy anything. If there are delay times because of the technology, then where's the progress of home shopping? If the technology is really strong and there's home-delivery service, I don't see any inhibitors."
Most industry executives see the advent and increase of consumer- direct shopping as both an adjunct to present business and a threat to established routines.
"Those that use it as an opportunity and address it in a proactive fashion will find consumer direct a viable way to reach consumers. Those who are the slowest to react will be the most threatened," said Schneider.
"Whether it's a threat or an adjunct depends on the method used," said Sleeper. For companies like Peapod, which are designed to use home shopping, Sleeper sees it as an adjunct.
"For those that are warehouse-driven, it becomes more of a threat. It depends on which method becomes more popular and whether the service creates more market share. Some will be bypassing supermarkets altogether and others will be using supermarkets. There definitely will be some shakeout," he said.
Phil Brandl, who was named president and chief operating officer of the National Housewares Manufacturers Association, Chicago, this year, doesn't see the home market as a direct threat.
"I think there's some repositioning that can be done. It can take some business away from certain retailers, but for housewares it really presents more of a growth opportunity. When you're talking about a home delivery-type opportunity, lower price point items can be an excellent add-on opportunity," he stated.
For years, some consumers have called their local supermarkets and pharmacies to get their orders delivered. More recently, some consumers have used the fax to send a list of preferred items. What the on-line experience adds to these methods of consumer- direct home shopping is an electronic or virtual interface. Consumers may be able to see actual shelf facings, compare prices, read descriptions and absorb advertising and competitive marketing messages while they are shopping, just as they do in-store.
Shoppers Express, Bethesda, Md., is a home and office grocery-delivery service now operating in 19 markets. According to Rich Olson, president and chief executive officer, it offers 26,000 Universal Product Codes on-line and has built its business by offering a large assortment of products.
"Sales of nonfood products are fairly similar to food products," he said, "except that the buying cycle is longer."
Olson mentioned that of the few nonfood items he stocks there is low consumption on-line. "You have to remember that with general merchandise, there are a lot of other outlets for these same items. On the other hand, people do buy a lot of stuff on-line that is overlooked in the supermarket, especially if the item has a one-time purchase frequency. It becomes an add-on item for us.
"There are a lot of people in this business who are offering a limited assortment of products, perhaps the top four products in any category. We think to grow the business, you have to offer as broad an assortment as possible," Olson said.
David Rochon, president of SuperMarkets Online, a division of Catalina Marketing, St. Petersburg, Fla., which offers discount coupons on-line, said the only difference between buying food and nonfood on-line is that the buying cycle is longer with nonfood. "Both are attractive to creating the kind of value we want to give to consumers," Rochon said. "I don't see one being any more important than the other.
"Everyone we've talked to wants value on-line and what that means is, give me things that are meaningful to me. And if it's a nonfood product and it's meaningful to a consumer, it has real value. And if it's a food product, it has real value, as well," Rochon said.
He noted that because on-line shopping is still in its infancy, it's still too early to tell whether there are specific products that won't sell.
"People need to understand that this new medium will change how people interact with each other," Rochon said. "The nonfood environment is very important to us. We are encouraging manufacturers, both food and nonfood, to participate with us en masse today to be better prepared for the next 12 to 18 months. They're better off being part of the process than sitting on the sidelines waiting for it to happen."