December 26, 2000, 9:55 AM

Pricey and perishable, online supermarkets struggle to deliver on their retail promise

(Page 3 of 3)

Fischer believes that moving onto the Internet is a good move for Whole Foods for a number of reasons, including the unique demographics of its customers, who tend to be highly educated and affluent and who generate higher profit margins. “Our product mix is unique,” he says. “We don’t have to price-compete on a can of Pringles.”

Dykema believes that WholeFoods.com will be among the winners in e-grocery sales along with other retailers selling high-priced niche products. “Their customers are high-income, highly educated and likely to buy online-and their products are unique and hard to find,” she says, pegging likely losers online to include anybody fighting for a small market.

For example, four players are currently duking it out in Boston, and unless sales grow significantly, only one will ultimately prevail. And one Internet grocer has already folded-OnCart, which sold groceries online through agreements with local supermarkets.

NetGrocer is generally perceived as a company with complex problems to overcome, according to Dykema, because its delivery costs are excessive, prices too high, and market demand too small. The company recently reinvented itself, however, changing its business model to offer a variety of items, such as books and software, in which it is trying to compete on the basis of price.

“But they’re not what you’d go to NetGrocer to buy,” says Dykema, who remains pessimistic about the company’s fortunes. “Not only is the product offering confusing, the way in which they display it is confusing as well.” NetGrocer’s Horowitz disagrees. “We had our difficulties in this business related to operational and execution issues,” he admits, but he says those problems are a thing of the past, pointing to NetGrocer’s customer-retention rate of 60% and calling the potential for the online grocery market enormous.

But despite the current problems, there is a consensus that e-grocery shopping will one day be headed for the express lane with a large number of households. “There are many obstacles limiting the potential of online grocery sales,” says Dykema, “and whoever solves them will be economically rewarded.”

Elayne Robertson Demby is a freelance business writer based in Weston, Conn.

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