November 25, 2002, 12:00 AM

Food & Drug: Brand and infrastructure go hand-in-hand

Retailers early on pegged food and drug purchases as likely candidates to succeed on the web. The failure of many of the web pioneers is no black mark against the concept; rather, it reflects flawed business plans of companies that thought they could create a national fulfillment infrastructure at the same time they were creating a national brand. Today, the infrastructure and brand are the reason that most of the retailers in the Food and Drug category of Internet Retailer`s Best of the Web are succeeding. Best of the Web in Food and Drug: Albertsons, Drugstore.com, Harry and David, Omaha Steaks, Safeway, Starbucks

Internet Retailer`s Best of the Web 2003

Albertsons
Drugstore.com
Harry and David
Omaha Steaks
Safeway
Starbucks

Retailers early on pegged food and drug purchases as likely candidates to succeed on the web. In fact, some online grocers pre-date the web’s rise as a consumer channel. The failure of many of the web pioneers is no black mark against the concept; rather, it reflects flawed business plans of companies that thought they could create a national fulfillment infrastructure at the same time they were creating a national brand. They put little thought into the difficulty of persuading consumers to change their shopping habits or their brand loyalty. The infrastructure and brand are the reason that most of the retailers in the Food and Drug category of Internet Retailer’s Best of the Web are succeeding, especially the supermarket chains Safeway and Albertson’s. “If anybody is going to make online grocery work, it has to be a traditional grocer with infrastructure already in place,” says David Kathman, retail analyst with Morningstar Inc.

In addition, retailers are finding that the same convenience that attracts consumers to other categories on the web is attracting them to food sites beyond supermarkets. Omaha Steaks, for instance, expanded its web offerings to lobster, pricey hors d’oeuvres and side dishes. “Internet customers are more adventurous and willing to spend more money,” says Todd Simon, senior vice president of Omaha Steaks International. That success prompted Omaha Steaks to open a site branded differently from Omaha Steaks-AlaZing.com. AlaZing offers ready-to-cook packages. The site, up little more than a year, is hitting sales targets.

Just as Omaha Steaks is finding that its catalog efforts translate well to the web and that the web increases sales, fruit and gourmet food gift retailer Harry & David is finding that customers like the web and the web is attracting new, younger customers. Nearly a third of its sales take place over the web, while portal marketing deals, search arrangements and affiliate marketing are driving new buyers to HarryandDavid.com.

Even food-related retailers that at first blush would seem not to be able to create a strong web presence are succeeding as e-retailers. Starbucks, for instance. The nationwide chain of coffee shops sells a compete range of coffee-themed items at Starbucks.com. Packaged coffee for brewing at home, mugs, sweets and coffee makers and accessories are all available at the site. And the web allows Starbucks to extend product selection beyond what its stores can carry. “The web has been a terrific way to give our customers more of a story about who we are and what products and services we offer,” says Anne Saunders, vice president of Starbucks interactive.


In spite of the success so far in this category, most food and drug retailers believe there is still room for growth. “We have done a good job in migrating customers to the web, but it’s only the first wave,” says Anne Ashbey, senior manager of Internet marketing for Harry & David.


Albertsons
The richness of the web

It was almost as if Albertsons Inc. was waiting for the pure-plays to go away. Along with Safeway, Albertsons quietly launched online grocery shopping, not getting much publicity while Webvan Group Inc. was the darling of investors and the press. In Albertsons’ case, the test began in Seattle in November 1999-and sat there unobtrusively for nearly two years.

But once the thicket of competitors started to clear away, Albertsons moved fast. A year ago, it expanded into the San Diego market; earlier this year it moved into Southern California, then expanded into Northern California and Oregon. Last month, it started delivering to homes in Las Vegas. And that’s just the start of an eastward push. “Certainly further expansion is in our plans,” says Pam Powell, group vice president of marketing for Albertsons Inc. But she declines to provide further details.

While the ability of supermarket chains to leverage their store infrastructure to serve the online market is well understood, Albertsons is leveraging the unique capabilities of the web to improve the web experience. “We’re learning how rich the web is in giving us information immediately as to what customers are responding to,” Powell says. “You can do it in the offline world, but it takes time. With the web, the information is at our fingertips.”

The changes have ranged from the extensive to the specific. For instance, Albertsons is implementing a site for the visually impaired. At the same time, it is being clearer about quantities of products. “People were assuming that with bananas, say, when they saw the quantity 1, it was one banana instead of one pound,” Powell says. “So they were getting more bananas than they wanted.”

In addition, Albertsons uses the web site to research offline initiatives. For instance, it has asked online customers about new products and about their awareness of certain marketing programs and has asked them to evaluate enhancements to the loyalty program.

Albertsons fulfills orders from several superstores, then delivers the orders either to the customer’s home or office or to another store for pick-up. Very few customers opt for store pick-up, Powell says, but the chain will continue to offer it as a service to a certain part of the market.

Albertsons has another benefit over the doomed pure-plays-and that is that it can use its existing marketing to promote the web site. “They’re being low key about their marketing,” says David Kathman, e-commerce stock analyst at Morningstar Inc. “A lot of their advertising for the web is just in their stores. It’s making a sounder business than Webvan did.”

Albertsons.com

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