St. Petersburg Times Online: Business
TampaBay.com
Place an Ad Calendars Classified Forums Sports Weather
tampabay.com

printer version

Shopping for online success

Publix has committed $50-million to create an online grocery service that is now operating in South Florida. It hopes to find the profitable online supermarket model that has eluded others.

By MARK ALBRIGHT, Times Staff Writer
© St. Petersburg Times
published May 19, 2002


photo
[Times photo: Bill Serne]
Joseph Lisa places bags of groceries on the kitchen table at the home of Dawn Stange in Coconut Creek. "Publix has never messed up an order," says Stange.
POMPANO BEACH -- Pamela Williams was lured into trying PublixDirect because the online supermarket waives delivery charges during the first month.

Now the Boynton Beach school teacher is hooked. It's no time-saver because ordering from her home computer means clicking in her picks from a mammoth list of 10,000 items. And the prices are the same as at a nearby Publix store.

Still, Williams saves money online.

"Even with the $7.95 delivery fee, I spend less because I only buy what we need," she said. "If I don't see it, I'm not tempted to buy it."

Those are hardly encouraging words to grocers such as Publix Super Markets Inc. that use every merchandising trick in the book to coax customers to buy more. Yet that's one of many surprises the Lakeland chain has learned from its online venture here.

Who could have predicted a Fort Lauderdale veterinarian would order a truckload of kitty litter every week? Or that bananas would be the most ordered item? Or that the average order would include 22 frozen food items?

In the dot-com frenzy of the 1990s, entrepreneurs bet that ordering everything from Alpo to ziti over the Internet would quickly become a regular ritual for millions of Americans. Pure-play online grocers such as Homeruns.com, Webvan and Streamline burned through billions of dollars of venture capital before flaming out.

Since then the nation's big grocers have stepped in, bringing their experience and massive buying clout to the elusive search for a profitable online supermarket model.

A shrunken version of the dot-com startup GroceryWorks is now operated by Safeway Inc. in some West Coast markets. Royal Ahold, the Dutch supermarket giant, acquired the remains of Peapod Inc., the industry pioneer that still delivers in parts of Chicago, New York and Washington. Albertson's Online delivers from selected stores in California, Oregon and Washington.

In Florida, Publix, the nation's seventh-largest supermarket chain, has committed more than $50-million to create its own service from scratch. Its much-delayed PublixDirect debuted seven months ago in parts of South Florida. Atlanta is next in line in late 2002 or 2003, followed by Orlando. The Tampa Bay area is on the short list sometime after that.

With experts forecasting that up to 5 percent of groceries eventually will be sold online, the supermarket chains are eager to learn the business and protect their market share from some future crop of dot-com interlopers. Profits remain elusive, but the service has attracted a core group of enthusiastic customers.

"I've been amazed," Pamela Williams said. "PublixDirect picks tomatoes as well as I do, and the ice cream is frozen hard when it gets here."

* * *

With the supermarket chains in control, online grocers are looking more alike.

"The common themes among the remaining players are take it slow and minimize costs," said Rob Gallo, a retail consultant with Retail Forward in Columbus, Ohio.

Delivery fees of $7.95 to $10 are standard. Customers must be home to meet the delivery truck, and delivery times must be booked a day or more in advance.

PublixDirect accepts only debit or credit cards. Tipping is forbidden. Coupons aren't honored, although they may soon be.

Of the roughly 30,000 items in a Publix store, 10,000 are available online so far, and selection gets bigger every week. Prescription drugs, magazines and decorated cakes are among the missing items. The service includes all the grocery store basics. Publix recently added deli platters, DVDs, paperbacks and cut flowers. The top selling brand is Boar's Head cold cuts.

So far PublixDirect serves southern Palm Beach County, all of Broward County and parts of north Miami-Dade County. Every order emanates from a central warehouse that enhances efficiency and keeps order pickers from congesting stores. The hub is strategically located minutes from three freeways so a fleet of 55 delivery trucks can cover every neighborhood within 25 miles. The supermarket Web site, however, is maintained 700 miles away in suburban Atlanta.

"Our fulfillment center is really just a Publix store done up in an industrial setting," said Tom O'Connor, president of PublixDirect.

Pickers (Publix calls them "shoppers") comb the aisles filling four orders at a time from 3 a.m. until noon. Tiny computer screens on their wrists chart their course and tell them what to grab. Computers also govern a meat cutter's work night, down to the thickness of the slices, and map the fastest routes for delivery rounds.

Instead of a beat-up delivery vehicle such as those used by some pizzerias, PublixDirect orders are delivered by a shiny new truck equipped with a walk-in cooler and a freezer unit set below zero. As a result, ice cream is exposed to room temperature for only about four minutes between the warehouse and the truck. The Publix seafood offerings range from frozen shrimp to sushi and stone crab claws packed in ice.

"I doubted we would sell more than 14 orders of fish a day," said Danny Kapaidia, manager of the Pompano Beach fulfillment center. "Last week we sold 240 orders of salmon alone in one day."

Behind the scenes, Publix resolved to rein in the free spending that helped doom many dot-com grocers.

"We've got about a third of the automated conveyor belts we saw" in rivals' warehouses, O'Connor said. "We won't buy a lot of the fancy (logistical) stuff until we get the volume to justify it."

The distribution center is less than half as big as the mega-warehouses some bankrupt rivals built. Publix purchasing agents scrounged handheld computers from the liquidation auction of a defunct online supermarket in Boston. The chain chose not to wire its delivery trucks with a satellite navigation system because of the cost.

But Publix cut no corners on customer service.

If the warehouse runs out of something, drivers are authorized to pick up items from a store. Computer-generated route maps alert drivers when they fall behind schedule. Drivers use cell phones to call customers if they will be late.

Publix wraps deli meat orders in butcher paper to remind customers they were custom-cut. Pricing mistakes are corrected with wireless handheld computers for on-the-spot adjustments. Delivery people even slip on disposable paper booties at each home so they don't track dirt on the carpet.

"People know Publix stands for quality, so we are committed to go the extra mile not to disappoint them," said Stacia Smith, marketing coordinator for PublixDirect.

* * *

Publix executives knew they would have to be nimble in the fast-changing high-tech arena. But the company found that pioneers face a long learning curve.

Elsewhere, for instance, most online grocery orders are delivered after 5 p.m. In South Florida, PublixDirect was hit with huge demand for home delivery between 8 and 9 a.m. That required adding a graveyard shift and becoming a round-the-clock operation to handle the unexpected early risers. "We were blindsided," O'Connor said.

Generally, Publix online customers are young career types, affluent retirees or people too busy for the supermarket shopping ritual.

One of the biggest groups is moms with infants at home. A trip to the supermarket is a major hassle for them, and they're awake early in the morning.

"Publix has never messed up an order," said Dawn Stange, a Coconut Creek airline flight attendant on maternity leave with her 1-year-old son, Noah. "They pick good tomatoes. And they always show up on time."

"It's worth paying the premium not to fight the grocery store crowds," said husband David Stange, an airline pilot.

The requirement that someone be home, however, is one of the biggest obstacles confronting online grocers.

Some earlier online shopping services offered locked, insulated delivery boxes so online purchases could be left in a garage or on a porch. One offered a $200 refrigerated unit. But such amenities were so expensive they are no longer part of any online supermarket model. All the surviving services require someone be home to accept delivery.

So the problem remains: Busy career couples who would seem to be the most likely customers for online shopping are not home enough to use it, said Gallo, the retail consultant. In the end, the lack of customers killed the first crop of Internet supermarkets.

Publix has adjusted its plans with the competitive landscape. It originally intended to kick off PublixDirect in Atlanta but scrapped that schedule when Webvan launched there first. There was no taste for hurling a fledgling business into a likely price war.

Then rival GroceryWorks of Dallas signed a lease for a warehouse in South Florida, a Publix stronghold where the chain controls more than half the grocery market. The brass of PublixDirect moved its debut to Broward County to pre-empt that competitive threat.

GroceryWorks never initiated service in South Florida, and Webvan went out of business a few months after its ill-fated launch in Atlanta.

PublixDirect endured plenty of startup glitches. The Web site needed retooling because many customers thought their orders were confirmed when they were not. Connections to the Atlanta computer hub had to be sped up because it took up to five seconds for each command to make the trip from a customer's computer to Atlanta, then back to the Pompano Beach warehouse.

Last fall the Web site crashed for a half-day. To get back in business quickly, programmers posted the previous week's pages. That worked, but Publix took a bath honoring outdated sale prices. In the chaos, customers who could be identified were called to expect a late delivery.

Because half of PublixDirect customers use slow dial-up services to reach the Internet, ordering can be time-consuming. But most customers have learned the "pantry" page on the site lists everything they ever bought from PublixDirect. To save time, past orders can be used as a draft shopping list and modified.

* * *

Publix will not talk about when the venture might become profitable. But a few numbers suggest the break-even point is still far down the road, even if the young venture is achieving the industry average order of $118.

At this point, PublixDirect employs 200 people to deliver 600 orders a day. That comes out to just three orders per employee a day. The average delivery route includes 11 stops in a driver's 10-hour workday.

In a service area with a population of 2-million people, PublixDirect's orders have steadily risen to 4,200 orders a week, the equivalent of a moderate-size Publix store. That's well short of the facility's capacity of 14,000.

On the other hand, Publix only recently began advertising its South Florida service in a small billboard campaign. With the early glitches fixed and the service area expanded to 92 ZIP codes, the company can start building the volume needed to become profitable. The Web site maintained in Atlanta can service the entire chain as more neighborhoods are added.

That might be sooner than the schedule already announced, although Publix has made no long-term promises for its online venture.

PublixDirect has no major online competitor left in any of four Southeastern states where the chain has stores, so the company is in no rush to expand. The only competitors are small delivery/shopping services such as GroceryDriver.com, which is run by two people in Clearwater.

Last year it ran up a $90,000 bill shopping at Publix stores for 900 customers. Its customers pay $15 for delivery, almost twice what PublixDirect charges, and many simply fax or phone in their orders.

"I'm not worried," said Lysa Chappelow, who owns the delivery service with her husband, Dan. "About 80 percent of my customers are elderly retirees who don't have the Internet."

Publix executives emphasize that their online venture remains a work in progress. They are not necessarily wed to an approach built around central fulfillment warehouses.

Other online supermarket operators such as Albertson's Inc. station a delivery truck or two and pickers at selected stores. (Albertson's eventually wants to "go national," but is in no rush to offer a similar service in Florida, a company spokesman said.)

Publix may experiment with a store-based service at some locations. PublixDirect also may try delivering to neighborhoods more than 25 miles from its service hub if it can drum up a customer base there.

"This has been a lot more complex than we thought, but we are meeting our performance targets," O'Connor said. "We first need to validate that the business model works, then we'll have some decisions to make."

-- Mark Albright can be reached at albright@sptimes.com or (727) 893-8252.

Back to Business

Back to Top

© 2006 • All Rights Reserved • Tampa Bay Times
490 First Avenue South • St. Petersburg, FL 33701 • 727-893-8111
 
Special Links
Stocks


From the Times
Business report
  • Struggling with the legacy of his past
  • Shopping for online success
  • Loose change
  • Ten Tips

  • From the AP
    Business wire


    From the state business wire

  • Judge denies dismissal of Citigroup shareholder suits
  • Carnival to buy 4 cruise ships from Italian builder

  •