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Dashing online for bread and milk; Food: In the fast-growing world of Internet-based business, grocery services are a small but growing frontier. But some consumers are skeptical.


SEATTLE -- At 10 in the morning,'s "shoppers" quietly push their carts along the warehouse aisles, filling shopping bags with everything from microbrews to apples.

By 1: 30 p.m., about the time a dozen trucks are supposed to start on their rounds, calm has given way to something approximating panic.

"Do you know where Truck 49 is?" asks Brenda Heckathorn, the produce supervisor, a package of waffles in one hand, a bag of sugar in the other.

Drivers are ordered to move away from the loading dock. Sneaker-shod shoppers sprint down the aisles.

By the time the last plastic "totes" of groceries are carried onto the last truck shortly before 2, several others have left. One shopper turns to another: "Not bad for a record day."

That's what it's like at the fast-growing Internet-based business,, which ships groceries from its Bellevue, Wash., warehouse to homes in the Seattle area. It can't hire people fast enough to keep up with demand.

Since moving from its experimental phase to full public service in May, has joined a half-dozen other companies competing to make money from a new frontier in electronic commerce. That none of the young companies is yet profitable -- and some are bleeding money at a frightful rate -- hasn't dimmed their enthusiasm.

Terry Drayton, a native Canadian who is co-founder, chief executive and president of, says the company spent "darn close" to $10 million in its first 10 months.

No one knows how much money -- if any -- an Internet grocery can expect to earn. Andersen Consulting last year estimated that total online grocery sales will reach $60 billion to $85 billion annually by 2007. In August, Forrester Research predicted, more modestly, online grocery sales of $10.8 billion annually, or 2 percent of total grocery sales, by 2003.

Total online retail business last year was about $5 billion, Forrester noted, making electronic-commerce grocery sales a mere "blip on the radar screen." It described four competing Boston companies "fighting over scraps."

Those words of caution aren't deterring entrepreneurs such as Drayton. In a $439 billion industry, he figures, "there's room for at least one e-commerce grocery to do a billion."

Drayton first toyed with the idea of a home-delivery grocery in 1992, when he was delivering bottled water to homes and businesses in Toronto and Montreal. One snowy night, he came home and proudly told his wife, Beth, that his company's 200 trucks had delivered water to 10,000 customers in a single day.

"She said, 'That's wonderful, darling. But if you really want to help me out, figure a way to get groceries delivered to the house. John's got an ear infection, we don't have groceries, there's snow all over the driveway and I can't get out of the house.' "

Drayton set up a 1-800-GROCERY line to take food orders by telephone. But he quickly calculated the cost of handling each order at $10 to $15 above a conventional store's cost. Worse, he couldn't figure out how to get up-to-date merchandise and price lists to customers.

He dropped the idea. But after selling his bottled-water company and moving to Vancouver, British Columbia, in 1996, Drayton began talking about home delivery with two friends. They concluded it was feasible if they took orders over the World Wide Web as a way to reduce the cost and provide customers with a current catalog.

Their target customers were families with plenty of money and a lack of time or desire to shop. They combed the United States for cities that had lots of computer-equipped families with children and incomes above $70,000. Nearby Seattle fit the bill -- and also proved to be a hotbed of retail innovators who could offer expertise and capital to the new venture.

Other electronic grocery companies have taken different approaches. The largest, Peapod of Skokie, Ill., has partnered with conventional grocery chains in selected cities to send personal shoppers to their stores and deliver orders to customers' homes.

It's a costly way to sell groceries, and Peapod lost $5 million in the third quarter. It plans to open its first warehouses soon in Chicago and on Long Island, N.Y.

NetGrocer, the only truly national grocery service, ships dry goods by Federal Express from its New Jersey warehouse. In the first quarter, the company lost $3 million on sales of $406,000.

While some home-delivery companies drop off orders on customers' back porches or garages, delivers only when the customer is home. Deliveries are scheduled within an hour-and-a-half "window" of time.

That may be a problem for some customers, according to Fred Schneider, director of Andersen Consulting's electronic retail division. He quotes one turned-off potential customer: "I've taken one inconvenient experience -- having to go to the store -- and turned it into two inconvenient experiences: No. 1, I have to fire up the computer and No. 2, I have to sit around and wait for the stuff."

Schneider also questions the use of the cumbersome Web to take orders. Some customers report needing up to two hours to do their first large order. Subsequent orders go much faster, in part because the Web site saves a personal shopping list based on past orders. also plans to let first-time shoppers order by phone or fax.

What is selling is, above all, convenience.

Kris Bizpensiere and her fiance, David Williamson, work at Microsoft and lead busy lives. "Sometimes it's not really convenient to have to go grocery shopping, or it's not the thing I want to do on my day off," Bizpensiere says. So the couple casually shops online, usually Sunday afternoons while watching football on TV.

Sarah Smith, a Redmond, Wash., homemaker and part-time actress and model, uses to avoid taking her boys, ages 4 and 8, on shopping trips. "Your kids are always going, 'Can I have that? Can I have that?' You don't have those enticing throw-ins going into your cart when you're on the computer." hasn't yet demonstrated that it can generate profits. Drayton expects the first "store" -- but not the entire company -- to be profitable by spring, when he plans to open a second store in California. He's also talking about opening two more warehouses in the Seattle area.

Schneider says that when one company demonstrates the viability of the online grocery business, "you're going to see an explosion of growth in this industry. ... There are over 175 markets that we believe ultimately will see these kinds of services over the next 10 years. That's when the numbers will jump."

With some online groceries already processing film, delivering ready-to-eat meals and carting clothes to the dry-cleaner, no one's sure what other kinds of high-margin merchandise might ultimately piggyback on the 21st-century grocery business.

Grocery shopping on the Internet

Grocery shopping online? So far it's just "a blip on the radar screen," scoffs one analyst of electronic retailing. The half-dozen companies in the business are all losing money. But Terry Drayton, co-founder of, figures that in the $439 billion grocery industrey, "there's room for at least one e-commerce grocery to do a billion." Pub Date: 1/07/99

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