At least four small application service providers (ASPs) -- MyWebGrocer.com, Shopeaze Systems, Peachtree Network, and Grocery Shopping Network -- are providing small to midsize grocery chains with the online sophistication of Webvan without the exorbitant overhead.
From RedHerring.com
redherring.com
an offline grocers fill baskets online?
By Tom Davey
Red Herring
3/6/2001
Forget Webvan (Nasdaq: WBVN) and Peapod (Nasdaq: PPOD); the next online grocer you
hear about may be your neighborhood supermarket. Over the past few months, more than
100 supermarkets have jumped on the Web and have begun selling their goods online.
At least four small application service providers (ASPs) -- MyWebGrocer.com, Shopeaze
Systems, Peachtree Network, and Grocery Shopping Network -- are providing small to midsize
grocery chains with the online sophistication of Webvan without the exorbitant overhead.
Their sites include product photos, ingredient labels, easy-to-search 'aisles,' shopping lists for
frequently purchased items, and the ability to pay by credit card.
For instance, MyWebGrocer, which already has 50 stores up and running, signed up three
more small supermarket chains in February and expects to bring 74 stores online by April,
according to the company. The four ASPs expect to have 1,000 stores providing full
purchasing capabilities over the Web within the next year.
Despite the well-publicized woes of Internet grocers, most notably Webvan, Forrester
Research predicts that in 2005, 8 percent of the $500 billion market for U.S. grocery sales, or
around $40 billion, will take place over the Web. Gomez Advisors forecasts a much more
conservative $14 billion for 2005.
Meanwhile, Webvan continues to sputter. Last week, the beleaguered online grocery retailer,
whose stock has been trading in the range of 25 cents per share, announced it would shutter
its Dallas operations and slash 220 jobs. Based on its current burn rate and a dearth of
potential investors, Webvan is expected to run out of cash by summer.
NOTHING DOWN
A year ago, when pure-play online grocers such as Webvan were the rage, ASPs who began
to cater to traditional grocers got no respect. 'People were asking me, 'Why are you working
with these dinosaurs?' Now the dinosaurs are called the incumbents,' says Gregory Kalinin,
CEO of Peachtree Network, who points out the profitability challenges of pure-plays. 'Order
fulfillment costs are very high for the online grocers because of the large radius around their
warehouses.'
Under most of the ASP models, grocers pay little or nothing up front but instead pay a $3 or
$4 service fee whenever a customer places an order. For the tight-margined grocery
business, the elimination of up-front overhead is attractive, say grocers. These fees are
passed directly to the customers.
Under the Webvan model, consumers must wait for a delivery van during a two-hour time
window. But this emerging local-store model allows customers to save time by picking up their
goods, which store employees have already packed, on their way home from work. The
typical charge is about $4. Some of these stores offer a delivery option for an $8 fee.
Major grocery chains have already invested in online grocers that have the potential to
integrate with their brick-and-mortar businesses. Royal Ahold (NYSE: AHO), which has 8,000
supermarkets, including 1,500 in the U.S., bought a 50 percent stake in Peapod. Safeway
(NYSE: SWY), with 1,650 U.S. stores, acquired a 50 percent share of Groceryworks.com.
On February 28, Royal Ahold extended its credit line to Peapod from $20 million to $50 million.
Peapod currently is setting up operations in the same markets as Ahold and dropping service
in markets where Ahold does not operate. By leveraging Ahold's bulk buying power, Peapod
expects gross margins to be 30 percent this quarter, up from 26 percent in the fourth
quarter, and expects to be profitable in two of its markets by midyear.
Despite the travails of Webvan, if ASPs get their way, virtually all Americans will have the
option to buy groceries online by 2005. And nearly all of the distribution will be handled by
local stores and through warehouses owned by traditional chains. |
