Who's Eating Whose Lunch?

Okay, I’ll admit it. I’m old enough to remember (very vaguely, mind you!) when one could phone in orders to a local grocery store and have the items delivered a few hours later.

As I recall, this wasn’t something people did regularly, but it was a handy service if you had a sick child or the weather was bad. Nobody made a big deal out of it. One of the store’s cashiers or stockers showed up with the bags of groceries, and you’d give him or her a small tip.

As major chains gradually consolidated the industry, the practice of delivering groceries went the way of doctors’ house calls. The practice was too customized and personalized for an assembly-line-oriented business.

The emergence of the Internet has brought the old-fashioned practice of grocery delivery front and center. Entire companies (Webvan and Streamline.com, to name but two) have formed just to enable consumers to order groceries online for home delivery.

The Establishment

So where do the major grocery chains like Safeway and Kroger stand on home delivery via the Internet? Very close to the ground and in a semi-recumbent position, it seems.

If you visit the Safeway.com site, the closest thing you’ll see to grocery shopping online is a feature that allows visitors to maintain their shopping lists online and view updates on special food discounts. And at Kroger.com, the only item for sale online is flowers, via a partnership with FTD.

This isn’t to say that the entire grocery industry has tuned out the online opportunities. Hannaford Bros. Co., a New England grocery chain, operates Homeruns.com, which serves primarily the Boston area. It has achieved high marks for its prices (free delivery on orders over $60) and service. Also in New England, Stop & Shop has closely aligned itself with online grocer Peapod.com.

But clearly the big boys – Safeway and Kroger – are playing a wait-and-see game. Kroger, for example, recently opted out of a six-month test of online grocery delivery because the service wasn’t meeting projections, according to The Wall Street Journal. The $9.99 per delivery charge likely didn’t help the new service get off the ground. In a Denver test, Kroger charged $7.95 per delivery, plus an eight percent fee on all orders up to $150, the paper reported.

The Real Game

While the established players, to a significant extent, focus on the margins on ground beef and the economics of delivery charges, their new competitors seem to have bigger fish to fry (so to speak).

Webvan, for example, has been offering free delivery to its customers in the San Francisco area. Streamline.com, which serves the Boston and Washington, D.C., areas, installs a refrigerator in each suburban customer’s garage at no charge, and the first two months of delivery, plus $50 worth of groceries, are free. Thereafter, there’s a $30 monthly charge, no matter how many groceries you order.

Webvan and Streamline clearly understand that the grocery delivery business is about much more than delivering groceries. It’s about collecting names and data so as to learn the buying habits of their customers. While the conventional grocery business has put bar codes to work to gather lots of macro information about consumer buying habits, it’s been unable to effectively link that data with individuals.

Webvan and Streamline have each raised many millions of venture capital dollars and carried out successful IPOs based on the promise of being able to not only collect many prospect and customer names, but eventually implement one-to-one food marketing.

Webvan is almost obnoxiously aggressive in the data collection arena. Its site suggests that anyone can purchase the beautiful roasts, shrimp, and cheese pictured on its home page. It’s only after you’ve provided your name, email information, and zip code that you are told that Webvan doesn’t service your area (unless you live in or near San Francisco). Then you receive an email that repeats this message and adds, “We’ll contact you as soon as service becomes available in your area.” And there’s no stated way to opt out.

At least Streamline is upfront in explaining on its home page that it serves only Boston and Washington. But a key agenda item for Streamline is to collect customer product data. It signed up 13 consumer packaged goods companies, including General Mills, Gillette, Kraft Foods, and Procter & Gamble, to “pay an annual sponsorship fee for advertising and merchandising programs and membership in the company’s Consumer Learning Center (CLC).” The CLC “measures consumer buying trends and behavior,” and members “gain access to the CLC’s consumer market research.”

In other words, the major food product manufacturers can see who’s buying their products, in what quantities, and in what combinations with other products. Streamline is positioning itself so it won’t need to worry about what it makes on soup and tomatoes because it is making so much from the data it sells to manufacturers.

Isn’t this, from a marketing perspective, what the Internet is about? You give free delivery or refrigerators or whatever in exchange for data? While the established old-timers are trying to determine the price points at which grocery delivery becomes a profit center, the newbies are out in the marketplace gearing up to eat Safeway and Kroger for lunch.

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