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

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.”

Drugstore.com
Going up against the chains

Drugstore.com has proven it’s a survivor. With a name that says it all and a multi-channel strategy from the get-go—Drugstore customers can pick up prescriptions at Rite-Aid stores—Drugstore defines what it means to survive on the web. Now it’s showing what it takes to thrive. And that means becoming part of customers’ regular shopping routine. “Drugstore is the clear victor among online drugstores; its main competitors now are CVS, Walgreen’s, Eckerd’s—the big drugstore chains,” says Duif Calvin, San Francisco-based retail analyst.

With competition like that, Drugstore is beefing up its product offerings. Just as a consumer can buy anything in a Walgreen’s or CVS store, Drugstore wants to become a frequent destination. So it’s adding magazines subscriptions in a deal with SynapseConnect Inc. and new boutiques, including sexual aids and pet supplies. It also mimics chains in sending out a weekly flier—albeit via e-mail—and it’s starting a loyalty program. It’s also offering services that drugstores don’t and probably wouldn’t offer: travel. On top of all that, it’s closing in on profitability. “We’ll be profitable in 2003 and there’s nothing more exciting than that in a company’s history,” says Kal Raman, president and CEO.

While most of the additions to the product assortment seem logical extensions, the travel component is decidedly odd. Yet it reflects one reason Drugstore has been successful: It listens to customers. “We would never have thought of it ourselves,” Raman says. “But our customers told us they liked the affordable luxuries they could buy from us and wanted to know if we could do the same for travel.” Drugstore will use travel aggregator WebLoyalty to offer hotel, airline and travel package discounts. If the offerings don’t fly, Drugstore can end the relationship with no risk, Raman says.

Similarly, Drugstore expanded into pet products by paying attention to customers. “We noticed many customers’ passwords were based on pets’ names, so we asked about their pets,” Raman says. “Many told us that if we sold flea medication or pet toys they would buy them.”

Drugstore stands out not only for the variety of products—including stocking smaller brands that stores don’t carry because there is not enough demand—but also for how it presents products and eases navigation, Calvin says. “They do one of the best jobs of any online retailer of creating boutiques,” she says. “They know they have thousands of products and customers don’t have time to look at all of them.” Expect more, Raman says. “We’ll have lots of announcement in the next six months,” he says.

Harry and David
Holding up a mirror to the catalog

Shoppers at HarryandDavid.com may have a feeling of deja vu when they arrive at the site: The Medford, Ore.-based retailer’s web site looks like the catalog. And that’s just fine with Harry and David, a unit of Bear Creek Corp. “The web site is an extension of the brand,” says Anne Ashbey, senior manager of Internet marketing. “We want the web site to mirror the experience in the store and the catalog.”

Indeed, it does. “They don’t do any special photography or copy for the web,” says Duif Calvin, San Francisco-based retail analyst. “It’s the catalog online.” But that’s good. “They understand who their customers are; they’re almost all gift-givers,” Calvin says. “And at this site, everything is about a very straight-forward gift-giving experience.”

HarryandDavid.com is a clean, direct site that is easy to navigate and that, by virtue of its resemblance to other channels, is comfortable for Harry and David customers. But the company, which specializes in fruit and gourmet foods and operates 140 stores in addition to its web site and catalog, also uses the power of the web to improve the experience. One of the most recent enhancements is the uploading of customers’ gift-recipient lists. Customers who register at the site can view their previous gift recipients—a service that Harry and David offers through the mail to catalog customers. But if there are no changes to recipients or gifts, the customer can finish her shopping with one click. Changes are easy, too; clicking on a name generates a pop-up window that displays the data. Customers make changes right there. Harry and David has applied for a patent on the gift list technology.

Harry and David was an early adopter of the web; its transactional site went live in 1996. Today, it generates as much as 30% of sales over the web but Ashbey is not content with that level. “We have done a good job in migrating customers to the web,” she says, “but it’s only the first wave.”

The next wave will be in attracting new customers to Harry and David via the web. Portal deals with MSN, AOL and Yahoo, search arrangements with Overture Services Inc. and LookSmart Ltd. and affiliate marketing relationships with 8,000 sites managed by LinkShare Corp. are driving new, younger customers to HarryandDavid.com.

HarryandDavid.com also gets high marks for its corporate gift services, with a shopping and ordering mechanism that simplifies the process for corporate customers. It’s another example of re-creating the offline experience online. “They know their customer and they’ve chosen to invest where they get a return,” Calvin says.

Top 500 Guide

Omaha Steaks
Surf ‘n’ turf on the web

Omaha Steaks is no stranger to direct merchandising. It’s been shipping out sirloin to catalog customers since 1952. But it’s the web that has made it more than a meat-and-potatoes retailer.

“We found early on that online customers purchase a wider variety of selections than catalog customers,” says Todd Simon, co-owner and senior vice president of Omaha Steaks International Inc. “They’re more adventurous and willing to spend more money. They’re more likely to buy lobster tails.”

Omaha Steaks got an early start on the Internet, in 1991, through a text-based store on the CompuServe network. It did about $135,000 that year, but it viewed the Internet as just another media placement, says Simon. He represents the family’s fifth generation that has owned and managed the company since its beginnings in 1917 as a supplier to restaurants and grocers.

By 1994 Omaha Steaks had developed its own web site, and the following year one of the first graphical stores on AOL. Then it began to learn the true value of the web as a selling channel, Simon says.

“We started to think about what kind of merchandise we wanted to offer online, and the advantages the web offered that we don’t have with the catalog,” Simon says. He notes that OmahaSteaks.com follows the catalog’s tradition of offering steaks and complementary products, such as sauces and breads. But products are merchandised differently online, where customers find prominent displays of pricey hors d’oeuvres and side dishes like Stuffed Antipasto Bread and Champagne Crab Cakes.

The success of selling through OmahaSteaks.com led to the creation last year of a sister web site, AlaZing.com, which offers ready-to-cook meal packages. “We had seen OmahaSteaks.com customers buy a wider variety of steaks, potatoes and desserts, so we saw a market for complete meal solutions,” Simon says. So far, the site is hitting sales targets. Simon notes that online sales are growing faster than other channels, accounting for 20% of consumer sales last year. The company, which also operates 78 stores, reported total sales last year of $302 million.

Meantime, the company has enhanced communications between online shoppers and customer service agents, dedicated a new staff of personnel to answer customer e-mail, and launched a customer registration process that allows shoppers to view their order history.

To broaden its online exposure, it maintains marketing partnerships with Amazon.com, eBay.com, Yahoo.com, MSN.com. and iVillage.com. “Our goal is to be as visible as possible online,”
Simon says.

Safeway
Bringing home the bacon

The grocery business is known for being one of the toughest to bring online. Fulfillment can be difficult to maneuver as well as costly, and many shoppers simply prefer to choose their own tomatoes.

The industry has some of the most notorious losers on the Internet. But it also has winners, companies that approach the online market steadily and deliberately. A good example is Safeway Inc. The Pleasanton, Calif.-based grocery chain is reporting online success up and down the Pacific Coast and plans to move into markets including Chicago and Baltimore.

Since this time last year, Safeway has launched online grocery sites for several West Coast metropolitan areas, including Vancouver, Wash., Portland, Ore., San Francisco and Sacramento, Calif. After rolling out in those areas with growing success, it launched in September in San Diego, operating under its Vons.com southern California brand. Covering more than 730 ZIP Codes and 320 West Coast cities, Safeway’s Safeway.com and Vons.com sites average about 100,000 unique visitors per month.

“We realize that the Internet provides several advantages that a brick-and-mortar store cannot,” says Dave Stewart, vice president of marketing for GroceryWorks, which operates Safeway’s online business. For example, Safeway’s web sites provide a “Real-Time My Favorites” feature that provides loyalty card users each time they register online with their 300 most commonly purchased items. The list includes store as well as online purchases.

Unlike failed online grocers that over-invested in warehouse infrastructure, Safeway fulfills orders from existing stores by professional pickers who read web orders from a wireless screen attached to their carts and networked to corporate computers. The system tells pickers not only exactly what customers want, such as how ripe they want their tomatoes, but also the fastest route within the store to shop.

“They’re doing a good job of it,” says David Kathman, retail analyst with Morningstar Inc. in Chicago. “If anybody is going to make online grocery work, it has to be a traditional grocer with infrastructure already in place like Safeway.”

Safeway’s online strategy has benefited from the experience of Tesco.com, the online store of the UK’s largest grocer, Tesco PLC. Both have relationships with GroceryWorks, which is owned 50% by Safeway and 35% by Tesco. Safeway has added improvements, such as making it easier to add products to online shopping carts and developing a text-only sister site for visually impaired shoppers.

Starbucks
Smooth blend of stores and web

It’s not quite coffee by the cup—yet—but subscription coffee ordered via Starbucks.com is one of the more mundane uses that Seattle-based Starbucks Corp. is using its web site for. “The web site 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.

Starbucks is clearly using its site to support its retail network of nearly 4,800 stores. “Starbucks has built an amazing brand around a commodity item and that carries over to their web site,” says Arvin Jawa, manager with Cleveland-based retail consultants LakeWest Group. “The site is not about shopping but about creating interest and getting people into the stores.”

That’s true—the site features a store locator and is incorporating an ordering function so customers’ coffee can be waiting when they arrive at their local store. It also sells Starbucks stored value cards and allows customers to re-load value at the site. “Starbucks has figured out the right way to use this medium,” Jawa says. “These are things that make the purchase process smoother in the store.”

But the site also does not ignore selling. Far from it. Starbucks.com, which hosts 1 million visitors a month, features a range of products, from coffee to coffee mugs and things to eat with coffee. Acknowledging the complexity of today’s coffee makers, Starbucks was one of the first merchants to make extensive use of online video technology. Using video technology from Vendaria Corp. that does not require plug-ins, Starbucks presents how-to videos for high-end coffee makers.

Starbucks also is using its web site to expand product offerings beyond what’s available in stores. For instance, due to limited space, a store may offer a coffee maker only in white when it comes in five colors. The other colors will be available on the web site. Similarly, it offers cups and saucers, teapots and coffee pots, serving items, foodstuff combinations and decorative, coffee-themed items exclusively on the web.

On top of it all, it’s easy to shop. “The navigation is smooth and elegant; ordering is very simple,” Jawa says. “In spite of the fact that I don’t think this is intended to be a shopping site, it’s a very good shopping site.”

Saunders says the company is on the constant lookout for new web offerings. “Our customers are very tech-savvy,” she says. In fact, 90% of customers—average age of 40, well educated with above average incomes—are online at home or in the office, nearly 50% higher than the population as a whole. “We like to keep the site new and fresh for them,” Saunders says.