With online membership soaring, companies ranging from supermarket delivery service Shoppers Express to entrepreneurial Peapod are hoping to convince computer users it's worthwhile to go online for a gallon of milk.
Shoppers Express expects to launch its service on America Online this fall, offering a database of products consumers can have delivered from local supermarkets. And Ameritech last month acquired a minority stake in Peapod, a small computer-based shopping service in Chicago and San Francisco, with the intention of broadening its reach.
But despite the interest in the category, online grocery shopping isn't a sure bet. Prodigy shut down its service in 1991 after three years, and analysts still aren't convinced the new offerings will reach a big enough audience to benefit marketers and retailers.
"I think groceries are going to have a real tough time in online shopping," said Steven Kernkraut, analyst at Bear, Stearns & Co. "The phone works reasonably well. And this is not a mass market, where you have 10 [million] or 20 million people. I don't think online availability is going to change things."
The America Online/Shoppers Express venture is expected to include several supermarket chains across the country. Vons Cos. had planned to offer the service through its Pavilions chain starting last month, but an America Online spokeswoman said the project was still undergoing tests.
Under the Vons plan, orders received through America Online would be faxed to a local Pavilions store. Delivery would cost $4.95 to $11.95 per order.
Shoppers Express also offers telephone-based grocery ordering and delivery in more than 40% of the country. Safeway, Vons, Winn-Dixie Stores and Eckerd Drug stores already participate in the service.
Peapod, founded by brothers Andrew and Thomas Parkinson, president and exec VP, respectively, claims to have tripled in revenues in the past 12 months. The 3-year-old Evanston, Ill.-based company has 7,000 subscribers in Chicago and San Francisco and plans to roll into Boston later this year.
Peapod said the Ameritech investment will allow it to expand to more markets and other delivery platforms, including interactive TV.
The company is more of a service operation than a facilitator, said Andrew Cohen, Peapod VP-marketing. Instead of using store employees and couriers, Peapod employees do the shopping and make deliveries to ensure service and control.
"We feel that's the only way to maintain the quality, and we're hearing from the retailers that's the way they want it," he said.
Peapod's text-based system offers 18,000 items, selected by category or brand name. Consumers order via computer, fax or phone and specify a 90-minute period to have their order delivered. Shoppers can take advantage of in-store specials and coupons, and payment is made via debit card, check, credit card and electronic funds transfer, through an ATM card.
In Chicago, the service costs $5 per month plus a percentage of each order. San Francisco Peapod users pay a flat monthly fee of $29.
"Every retailer wants a strategic and competitive edge," said Shoppers Express President Elan Blutinger. "Peapod is geared to work on a store-by-store level; we work across a whole metro market or area. It's a different business plan."
But while both Peapod and Shoppers Express make shopping more convenient, their text-only interface-offering only product name and price-leaves little room for the traditional brand promotion efforts that drive the supermarket business. In the online world, Coke, Pepsi and RC Cola all get the same billing, and only price sets them apart.
At present, computers can't handle the full-motion video or sound that permits inspection of multiple product labels or "virtual" store shelves, Peapod's Mr. Cohen said.
"As the pipeline gets bigger, you'll be able to send more information through it," he said. "We're trying to figure out what it is the customer wants and we'll be doing some tests with different manufacturers."
That may include the electronic equivalent of end-aisle displays and other in-store promotional materials.
Shoppers Express is completing a merger with ShopperVision, a Norcross, Ga.-based company that has developed a graphic interface for interactive grocery shopping. Sandy Goldman, president-CEO of ShopperVision, said that interface, capable of showing store shelves and pictures of products, may be used on America Online.
Such shopping could change the economics of retailing as supermarkets become more like warehouses and less like showrooms, said William Bluestein, senior analyst at Forrester Research, Cambridge, Mass. It could also eat into the profitability of convenience stores, much of whose business is in spur-of-the moment purchases.
"For online shopping to fundamentally take root, groceries have to be a part of it," he said. "It's predictable and repeatable, and that's the most common shopping everyone does.
"But how do you combine high tech and high service?" he cautioned. "Getting the order in to the grocer is not going to be the problem. The problem is getting the order filled, getting the order booked and getting it picked up or delivered."
Mr. Kernkraut of Bear Stearns doubts an electronic supermarket will have the same profit potential as such companies as QVC and CUC International enjoy for electronics or jewelry.
"You might buy Levi's jeans or a name-brand Sony TV from an online system, but I don't know if I'll place a grocery order," he said. "I question the logistics of picking out all those $2 items and getting it to my house. That's tougher to execute than saying, `I want a pair of Lands' End khakis."'
Debra Aho Williamson contributed to this story.