Netgrocer metamorphoses, shifts identity and objective - Food - Brief Article

DSN Retailing Today,  June 10, 2002  

Tags: food

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NORTH BRUNSWICK, N.J. -- The evolution of online food shopping has shifted 180 degrees since the high-flying days of the pureplayers. Now only one national e-grocer remains, as traditional supermarket chains are treading cautiously into what has proven to be risky territory for generating profit. And it's interesting to note that this sole survivor, Netgrocer, is now banking on partnerships with traditional grocers to make ends meet.

After changing its name to NeXpansion, the nonperishable food delivery service begun in 1996 wants to work with, rather than compete against, traditional grocers. A service called the Endless Aisle offers food retailers hard-to-find and regional items delivered by NeXpansion, after ordered through in-store kiosks or the retailer's Web site. Already, two grocers are testing this service, Penn Traffic's P&C Foods division and Stop & Shop.

Although ceo Lisa Kent of privately operated NeXpansion wouldn't say if business is profitable, she did share her thoughts with Retailing Today at the recent Food Marketing Institute convention in Chicago as to why it is still operating when others, Webvan, Shoplink, Home Runs, Home-grocer and Streamline, ran out of cash in the dot-com failure.

"We have always been different in terms of not trying to compete with bricks-and-mortar stores, but trying to complement them," Kent said. "There's a place for a pureplay that offers something a bricks-and-mortar retailer does not."

Kent said early forecasts of online shopping were overly optimistic, resulting in the failure of pureplayers that didn't generate sufficient sales volume to make up for start-up costs. The prime example is Webvan, which spent millions building state-of-the-art distribution centers and eventually went bankrupt. Netgrocer, in contrast, had lower operating costs since its model didn't involve van-based home delivery or perishables. Netgrocer still sells nonperishable food through its Web site.

Kent declined to reveal the New Jersey-based company's growth rate, only saying food sales revenue was under $50 million last year. NeXpansion's largest shareholders are Parmalat, a multinational dairy and food company, and Cendant Corporation, a global provider of financial and consumer services.

U.S. online grocery sales are estimated at $1.2 billion this year. Jupiter Media Metrix forecasts the market will grow to $6 billion by 2006, or about 1% of grocery sales.

With most pureplayers now out of the picture, the country's major grocers are experimenting with online sales. Albertson's now offers home delivery in select markets in Oregon, Washington and California, while Safeway operates in San Francisco, Portland, Ore., and Vancouver, Wash. Safeway works in conjunction with GroceryWorks, a Web-shopping service that is 50% owned by Safeway and 35% owned by U.K. retailer Tesco, which claims to be the most successful online grocer in the United Kingdom.

The country's first Internet grocer, Peapod, is still operating in New England, Chicago and Washington, D.C., but in partnership with a traditional retailer. Peapod nearly folded before it was rescued with funding from Dutch grocer Royal Ahold. Peapod and Netgrocer, which were once competitors, both operate separate components of Stop & Shop's Web service.

As has been the case generally in e-commerce, traditional retailers are now becoming leaders due to their brand power and established customer base. Amazon notwithstanding, this appears especially true in the world of grocery sales.

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