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Experts question net effect of online grocers

By Dave Bodamer

A panel of supermarket experts discussed the effects of e-commerce.

LAS VEGAS — Supermarket executives have their eyes on the Internet even though online grocers have not yet figured out how to make money from home-delivery services.

The Internet will have an impact on the industry, said panelists at the “G-Commerce: The Grocery and Drug Store Business and the Foundations of our Industry’’ session, but despite its rapid cycle of change, grocers are in no rush to develop delivery services and will have time to adapt.

“The day may come that online delivery operations have enough mass to be profitable, but we don’t know today who will be able to do that,” said Patrick Barber, senior vice president of real estate for Ralphs Grocery Co., Compton, Calif. “Will it have an impact on retail and shopping center development? Maybe it will, maybe it won’t. Nobody knows. There’s lots of money being bet by a lot of companies that they know how to do it, but no one has delivered yet.”

Moreover, in the end, it will be the retailers with both an online and physical presence that win in the long run, according to panelists. “As fast as this is all happening, every analyst says that even in six or seven years, it’s still just going to be a small part of the business,” Barber said. “We have time to react and adapt.”

The recent struggles of early e-grocers such as Peapod and Webvan had panelists repeating last year’s message: Continued consolidation of grocery chains and Wal-Mart superstores and other similar operations that sell groceries will have the greatest impact on the industry in the short term.

“There just aren’t that many [online grocer] customers right now,” said Ken Cassar, an analyst with New York City-based Jupiter Communications. Online grocery sales will amount to about $800 million in 2000. The market will grow to $7.5 billion in 2003, according to Jupiter’s estimates.

“That sounds like a lot, but really it’s only about 2% of the grocery market,” Cassar said.

In contrast, Wal-Mart alone will operate nearly 900 superstores in the United States by year’s end. Sales at the megaretailer’s supercenters already comprise 50% of its overall sales. In addition, Kmart has about 150 superstores and Target is beefing up its portfolio. The chain will operate more than 30 SuperTargets by 2001 and will reach 200 locations within the next 10 years.

“We’re going after a typical Target customer,” said James T. Hale, Target Corp. executive vice president, general counsel and secretary, when asked if there was room for another player in the grocery market. “There’s some overlap in the discount market, but we’re more upscale. That’s our niche.”

Besides trying to sell goods and reach customers, supermarkets will be able to use the Internet and other technologies to add new services to brick-and-mortar stores.

More stores have added self-checkout lines or devices that tally a customer’s bill as they shop. Just down the road are ePC chips that will replace UPC symbols when they become cheaper to manufacture. The chips, which will be attached to all goods, will allow cashiers to tally the price of every item simultaneously with readers that can scan many chips at once.