The Supermarket was a massive customer service advance in the grocery industry. All the foods and packaged goods that Americans could think of found their way into the neighborhood, under one roof, and at lower prices than the little corner groceries. In time, parking was added, and the expansion of commercial traffic along strip malls carried the supermarket to every place in the U.S.A., -cities, suburbs, ex-urbs, and the rural beyond. Chain store development changed distribution patterns. Manufacturers and specialized distributors shipped their products directly to Chain depots, which then sent the wares by lorry to stock the stores. The old sight of manufacturers' trucks pulling into the supermarket lot is passed, only the company lorry enters. Few Americans are more than one half hour from a supermarket. Many within fifteen minutes. Convenience and price drive competition in the mainstream market.　

　　Consumers have only six remaining points of inconvenience. (1) They must get to the store and drive back home again. (2) They must still select items for purchase on their feet. (3) They have to wait in line to pay for their purchase. (4) They must set the bags of groceries into the car, and lift them out at home. (5) They must unpack their groceries and put the items in their place. (6) Very few supermarkets are open 24 hours. Many supermarkets have addressed several of these problems. Some take home delivery orders. More stores will follow. Modern shopping carts, rational shelving and efficient store design makes for swift and easy selection. Scanning and more recent checkout innovations reduce waiting time, though there is still a backup. Attendants set bags in you car, but there seems to be no company solutions to get the bags out of your car and into your home. Family members will have to do. The same holds true for the tedious tasks of putting your items in their proper place. There is room for improvement.　

　　Along comes the cyber-shopping challenge to the supermarket industry. How much of the industry will E-commerce replace? How much of the Internet technology will the supermarket industry absorb into its store facilities? Substitution or competitive response!　

　　On-line grocery shopping today is $5 billion, with an expected target of $10.8 billion by 2003. At today's rate of change, this four-year growth estimate of less than 3% industry substitution represents failure rather than success. I think it is greatly underestimated.　

　　There are two models of cyber-shopping. The older model, represented by Peapod, is a shopping service that utilizes existing supermarkets as their suppliers, like Safeway and Stop N Shop. Peapod takes the orders, communicates with its supermarket partners, shops the package and makes deliveries. The newer model, represented by ShopLink and Webvan, builds its own warehouse distribution centers. ShopLink, serving the Boston area, has a 65,000 square foot center. Webvan in Oakland, CA is building a 330,000 square foot warehouse. Its founder, Louis Border of the eponymous bookstore chain, is planning 26 regional centers, and has raised $1 billion in investment capital. Both models charge a monthly delivery fee and offer prices that are competitive with the supermarkets. Some require that a person be at home to receive the order; others deliver to unattended homes. Some install cold lockers for perishables in garages, with secure access technology. Orders generally are required by 10PM, for next afternoon delivery. All models draw upon 9,000 grocery items, and add cleaning, shoe repair, video rentals, and other items, to their delivery service.　

　　Both models appeal primarily to three segments of the population: suburban homeowners, mothers with young children, and TAFies (technologically advanced families). Suburbanites have garages for delivery storage. Mothers with young children find it most difficult to get to the supermarket. TAFies enjoy cyber-shopping. These segments are large enough to take a big chunk of business from the neighborhood supermarket.　

　　Cyber-shopping technology is here to stay. The only question is how these models will develop, and how supermarkets will respond. Peapod is really a cyber-delivery service for the supermarkets. Webvan stands for substitution. Its mammoth regional warehouses will ship to staging areas in the region, and from there truck fleets will make home deliveries. These will be mammoth fleets. ShopLink is already doing 500 deliveries a day with 28 drivers. This is small potatoes compared to Webvan's logistical ambition. They aspire to fleets on the order of UPS.　

　　Webvan's vision of cyber-shopping as a substitute for the supermarket faces the problem of attracting enough market share from its target segments to give them sufficient return on large-scale investment. Stock markets so far exhibit faith that such businesses ultimately will develop decisive convenience and price advantages, and have capitalized them accordingly. Does Webvan have enough non-reproducible advantages over existing supermarkets and the Internet features that supermarkets may absorb into their operations? Can these independent advantages move sufficient target segment purchases away from the supermarkets? Or will supermarkets respond competitively to defeat this substitution model?

　　Shoplink will eliminate the first supermarket inconvenience of driving to the supermarket, but at the cost of a 15-hour waiting time for deliveries. Let's give Webvan the benefit of cutting this in half. Can the suburban mother with young children wait this long for milk, cookies, and pampers? Only if she is very well organized. This number is probably smaller than the number of "pressured" mothers, who cannot wait. The current drive time and hassle is still less than the waiting time for delivery systems based on regional facilities and staging areas. Single or married TAFies without children are uncertain about how they will spend their after-work hours. They are not likely to prepay for a delivery that controls their evening time.　

　　The second inconvenience, that of item selection time, may be improved, but not significantly. People who make quick decisions spend little time selecting items in the supermarket. They know what they are shopping for, and they fill their cart quickly. In fact it may take them more time to scroll items for selection on the Net. People who are slow to decide will take as much time electronically as they do on their feet.　

　　The third inconvenience - waiting in line - will be eliminated by cyber- delivery. But many supermarkets now offer call-in orders for delivery, and they certainly can institute pickup drive-ins for telephone, fax, and Internet orders. This is a likely competitive response, and it will be faster to stage from local supermarkets than regional facilities. The fourth inconvenience - setting bags in the car and retrieving them at home - can also be solved by supermarket delivery to the home. This is not an independent advantage of cyber-shopping.　

　　Hiring a maid or waiting for a robot can only solve the fifth inconvenience of shelving your purchases at home. There is nothing that Webvan can do about this. Finally, the sixth inconvenience - not having a nearby 24 -hour supermarket - is not solved by ShopLink's 15-hour delivery cycle.　

　　What then are the truly independent advantages of a Webvan model that supermarkets cannot respond to and match? Does cyber-shopping have enough of an independent value proposition to switch a critical mass of consumers on a sustained basis? On almost every front, supermarkets can respond to Webvan advantages. They will, indeed, offer order and delivery services through their own web sites. The supermarket chains have enough capital to make this investment when it becomes necessary to do so, - namely, when it is time to defeat Webvan. Financial markets capitalize E-commerce ventures, like Webvan, without considering competitive response.　

　　This brings us to the Peapod model of grocery cyber-shopping. This model is really an electronic service improvement to existing supermarkets. Instead of the suburban mother or TAF going to the supermarket, Peapod shops in the existing supermarket. Peapod is essentially a home delivery supplier to the supermarkets for customers who want to shop electronically. It focuses on the web site development and delivery logistics, rather than procurement and warehousing. This focus may make it an efficient cyber outsourcer that supermarket chains may prefer to their own independent ordering and home delivery service. The stores will initially absorb Peapod's shopping function, while Peapod or other suppliers of this same model, focus on E-commerce order taking and delivery. In short time, Safeway, Food Lion, Krogers, and others chains will build their E-commerce web sites and package these orders for home delivery. Here is Peapod's eventual low-tech destiny, a home food delivery supplier to the supermarkets.　

　　The supermarket chains will competitively respond to new initiatives in cyber-shopping. Without a compelling new value proposition, like reducing food costs for the consumer by 20%, we are more likely to see cyber- shopping as a service improvement of present day supermarket shopping, rather than as a basis for its demise. MK