Online Grocery Business Still Ripe

By eweek  |  Posted 2001-07-16

Pure-play internet grocer Webvan Group might be history, but traditional grocery store chains continue to expand their online grocery efforts.

Traditional chains have a leg up on Webvan, which spent millions of dollars to create its own network of national distribution centers. The Foster City, Calif., company shut its Web site and fired about 2,000 workers last week. Webvan suffered from low product margins, high delivery costs and an inability to retain customers.

Meanwhile, chains such as Safeway and Albertsons already have infrastructure in place to handle grocery deliveries to the home. Both chains are experimenting with online operations that work on a per-store basis.

Safeway, which owns half of the GroceryWorks online service, said last month it was closing its Texas distribution centers for online sales and will deliver groceries out of individual stores. British supermarket operator Tesco invested $22 million in GroceryWorks to aid in overhauling the online operations. GroceryWorks service is available only through Safeway-owned Randalls and Tom Thumb stores in Texas, but the company said it plans to expand into other regions.

Albertsons closed its Fort Worth, Texas, warehouse in May. The company offers online shopping through nearly 40 stores in the Seattle region, and is evaluating expansion plans.

Publix Super Markets in the Southeast and Supervalu, a supermarket retailer and distributor in the Midwest and East, plan to launch services this year. The Kroger Co. offers online shopping through a Colorado chain .

"The online grocery industry will survive the failure of Webvan, but growth will come quite a bit slower because of it," said Ken Cassar, a senior analyst at Jupiter Media Metrix.

Jupiter estimates online grocery store revenue will be about $800 million in 2001, increasing to $1.3 billion in 2002. Webvan accounted for 46 percent of the industrys revenue.

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