Is Grocery Shopping A Key To B2C E-Commerce?

Last November, when priceline.com (Nasdaq: PCLN) began selling groceries online, it was anybody’s guess whether the public would take the bait. Now, two months later, priceline.com has more than 75,000 members in its “name-your-own-price” WebHouse Club grocery service, and the company is looking to penetrate a number of markets in the Northeastern quadrant of the United States.

This week, the service reached the two-millionth-grocery item milestone. If it took a gimmick like “name-your-own-price” to get people to sign on and shop, so be it. Priceline.com, like many other concerns in the country, was quick to recognize how pervasive online grocery sales could be.

Until recently, the conventional wisdom held that if they cannot touch it, smell it, squeeze it or see it, shoppers would not buy perishable items online. So much for conventional wisdom.

Implications for E-tailers

Online grocery sales might just be the most revealing test tube in the e-commerce laboratory. For a number of reasons, how grocery selling goes online may precipitate the next evolutionary phase of business-to-consumer (B2C) electronic commerce.

First, the much-talked about goal of e-commerce becoming a part of mainstream American shopping can only be attained if consumers go online for staple items. It is not often that a shopper buys a new appliance or books a cruise, but grocery shopping is generally at least a weekly event.

If online grocers can generate a repetitive weekly shopping pattern among their customers, chances are that more users will become comfortable with the process sooner.

Second, now that the holiday sales blitz is behind us, e-tailers are struggling to establish loyalty among their customers. Most consumers shop for their groceries at the same place repeatedly.

If an online grocer can establish a reliable army of return shoppers, the loyalty card will have been played successfully. To date, online shoppers have been more apt to click from e-tailer to e-tailer, making loyalty the elusive dream of most merchants.

Further, while shoppers have tended to buy selected items here and there on the Web, they may buy multiple items at grocery sites. That would establish online grocers as one of the only Web-based businesses that can truly rely on volume sales per customer on a long-term basis. Once that happens, profits could soar.

How About Some Mustard for Those Hot Dogs?

The most important element in the great online grocery experiment may be the merchant’s advantage to do serious up-selling. Technology called “collaborative filtering” programs run in conjunction with ordering software to provide shoppers with massive database comparisons.

For example, if a customer orders steaks, salad items and wine online, the filter scans the database and finds that 5,000 other shoppers have ordered those same items. It then does a quick search for additional matches and finds that of those 5,000, 3,500 also purchased potatoes. In seconds, the search engine recommends potatoes.

PinkDot.com, a U.S. West Coast grocery e-tailer, routinely uses collaborative filters to increase its per customer sales. While the technology is almost a decade old, it has only recently caught on with major e-tailers. Amazon.com and CDNow.com currently up-sell items on their sites via collaborative filters.

Many Modes To Fill The Order

One of the misconceptions of online grocery shopping is that the order is then delivered to the shopper. In many cases, the customer places the order via the Net and then picks it up at the grocery store.

Safeway Stores, for example, is working with IBM on a test model in England. Shoppers are given a hand-held computer with specialized software and lists of the store’s inventory.

Shoppers simply find their desired products, check them off and send the order via modem to their neighborhood Safeway store. Then, at an appointed time, they pick the order up.

Priceline’s WebHouse Club allows consumers to place their grocery order on the Internet, and then claim the items at local supermarkets, including big name stores like A& P, Stop & Shop and ShopRite.

The importance of both procedures has as much to do with convergence of online and traditional retailers as it does with filling individual orders. It is a clear example of how clicks and bricks can work together.

Other sites are experimenting with various delivery systems, and experiencing uneven success rates. Still, the chances are that if the customer enters the traditional store to claim the order, additional impulse items may be purchased.

Everybody wins in these transactions, including the e-tailer, the offline merchant, and most importantly, the consumer, who might just get used to the convenience and potential savings that online grocery shopping offers.