Peapod, Shoppers Express vie for online grocery business

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Peapod Online Services and Shoppers Express, the largest players in online grocery shopping, are going head-to-head.

Shoppers Express today enters Atlanta, the second city where the two compete directly. Dallas was the first.

The battle comes as more players enter the online grocery shopping market, which is expected to grow to $60 billion in the next 10 years.

STRONG GROWTH SEEN

Andersen Consulting predicts in the next 7 to 10 years alternative grocery shopping channels will represent from 8% to 12% of the consumer package-goods channel and that between 15 million and 20 million households will shop via alternative methods.

Until now, Peapod and Shoppers Express had enjoyed relative success by being the sole major players in their markets.

Peapod, currently in a quiet period before it files for an initial public offering, markets its service to 50,000 subscribers in Chicago, Boston, San Francisco, Houston, Dallas, Atlanta and Columbus, Ohio.

Shoppers Express--which claims a subscriber base is in the "tens of thousands"--is in Los Angeles; Phoenix, Ariz.; Atlanta; and Dallas.

PROVEN DEMAND

"Clearly, Peapod has proven there's significant consumer demand for this type of service," said Fred Schneider, worldwide director of electronic commerce programs at Andersen. "But Peapod has yet to demonstrate they can do that profitably." Peapod for 1996 reported a net loss of $9.5 million on revenues of $29.2 million.

Getting to profitability increasingly requires a mix of grocery alliances and partnerships with local online services.

Shoppers Express, for example, is part of America Online-owned Digital City Los Angeles and U S West's DiveIn regional service. The company also is working with Cox Interactive Media in Atlanta; is part of the @Home cable modem trial in Orange County, Calif.; and offers shopping via NetChannel, a competitor to WebTV Networks.

"Because our system is Web-based, the key is forming alliances online to drive quality traffic to our site," said Allison Abraham, president of Shoppers Express.

WEB AWAITS PEAPOD

Peapod, which touts Ameritech Corp. and Tribune Co. among its major investors, has not yet launched its service on the Web, but offers free software downloads from its site.

Users can access Peapod through the Tribune's Chicago Online area on the Web and America Online.

Smaller start-ups also are trying to tap into online grocery shopping. Smart Shopper Grocery Delivery offers online shopping to about 500 consumers in Boulder, Colo.

While it claims to be operating profitably, Smart Shopper CEO Jeff Feenstra is shifting to becoming a software provider for grocery retailers that want to offer online shopping and home delivery.

EDUCATING CONSUMERS KEY

"This business is a no-brainer for grocery stores and manufacturers," said Mr. Feenstra. "The trick will be breaking consumer habits and helping them realize that it's OK to have other people do their grocery shopping for them."

The Boston area boasts a slew of online grocers, including Groceries to Go, Hannaford HomeRuns and Streamline, which currently uses only phone/fax applications for its service.

"Grocery shopping is a very local service and it's important to do a lot of co-marketing and co-promotion with local media outlets and manufacturers," said David Cuthbert, president of Groceries to Go, which swaps banner ads with the Boston Globe's Boston.com.

Although establishing a brand is important, Alison Berglund, director of marketing for Hannaford HomeRuns, considers educating the consumer as the biggest hurdle.

"Our biggest competitor now isn't an online service but the grocery retailers in the area," she said. "We need to change consumer behavior and convince them to shop online instead of at the store."

Copyright June 1997, Crain Communications Inc.

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