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Too late for second guessing. Hannaford dived in aggressively, launching an online market in densely populated Boston, near one of its main distribution centers. Furber soon learned that being one of the first guys out of the gate meant tackling problems completely new to his industry. He and his team worked for almost two years on an inventory program for the website, which promises next-day delivery to Boston and surrounding towns. He also created a 24-hour crisis team to handle snags like system outages and snowstorms. Other considerations were more mundane but still time consuming and central to the business: it took three tries to find the right tote bag for delivering perishables--one that would keep eggs from breaking and lettuce from browning. All the while, Furber was operating not in the profits-optional world of an Internet CEO, like his competitors, but in the 1%-profit-margin world of the supermarket industry. "Because I'm part of a retailer and I have to answer to somebody, I have to constantly ask myself, Is this going to be an enduring business model?" Furber says. He thinks so, and he believes that within 10 years there will be three profitable online grocers. In the meantime, while he may not have the luxury of an initial public offering, Furber does have one big advantage over a start-up: Hannaford's large buying power stocks his shelves.
Nonetheless, start-ups are where a lot of the action is these days. Webvan, a San Francisco online grocer that just began filling orders in May, is already devoting $1 billion to building a national network of distribution centers. And Peapod, the category leader, recently abandoned its strategy of picking product from retailers' stores and began building its own warehouses. "That's allowed us to work more efficiently and to make fewer mistakes with orders," says Peapod co-founder and CEO, Andrew Parkinson. "Now that we're getting some competition, those improvements are critical."
One brick-and-mortar retailer that relies on Peapod as part of its e-commerce strategy is Kroger, the Cincinnati-based operator of 3,400 stores. Kroger signed a five-year contract with Peapod in its Columbus market in 1996. The company is also testing small pilot programs of its own in Huntsville, Ala., and Colorado, but has no plans to announce a national e-commerce strategy. As the country's largest supermarket chain, Kroger may be the traditional retailer with the best potential to launch a successful online brand. But, says Kroger spokesman Gary Rhodes, "with the razor-thin margins in this industry, we have to be cautious. Until we see some evidence that you can actually make money online in this industry, we're not interested in becoming a major player."
That may be prudent, but then again, maybe not. Like so many other companies waiting out e-commerce's tumultuous early days, the grocery giant will have to hope that in the meantime some online player doesn't take a major bite out of its sales.