Safeway Fires Back in Online Grocery Battle

In its latest move to keep pace with rival Albertson’s (NYSE: ABS),grocery giant Safeway (NYSE: SWY)announced late Wednesday the launch of its onlinegrocery shopping and delivery service in the SanFrancisco and San Jose, California, areas.

The northern California debut of GroceryWorks.com– which is 50 percent owned by Safeway and 35 percentowned by UK-based Tesco — came just twodays after Albertson’s launched its ownonline service in the same locale.

“There is room enough for multiple winners in thisspace,” GartnerG2 research director David Schehr toldthe E-Commerce Times, noting that he is not surprised to see one-upmanship taking place.

“If it is done in acost-effective way, online grocery sales are avalue-added service,” he said.

By leveraging existing supermarket infrastructures,online grocers will continue to reinvent the conceptpioneered by Webvan and will move steadily into otherlocations, Schehr predicted.

On Your Mark

That said, Northern California may be theripest proving ground for the online grocerystandoff, according to analysts.

“[Online grocery sales] may be more of a niche ratherthan mass market, with a subset of people who areaffluent and busy enough to pay for delivery, “Morningstar.com analyst David Kathman told theE-Commerce Times.

Indeed, Safeway is banking on finding such a subset of customers inthe Bay Area.

“With the busy lifestyles, heavy traffic and longcommute times of the Bay Area, we feel this servicewill be well received here,” GroceryWorkspresident Steve Frisby said.

Loyalty Points

Safeway will compete with Albertson’s to capture theloyalty of consumers, who typically conduct about 60percent of their grocery shopping at a single chain, Schehr noted.

“Online grocers need to make it easy for shoppers andreward them for shopping with them,” he added.

Toward that goal, Safeway said it will cater to loyal Club Cardmembers by granting them online access to theirregular in-store purchases. In addition, customerswill be able to earn Safeway “savings awards” as well as air miles with United Airlines.

Schehr suggested that redeemable shopping points willbe more immediate and relevant than frequent flyermiles. He noted that only about one-third of Americanadults fly in any given year.

At Your Service

The GroceryWorks Web site presents virtual aisles of frozenfoods, dairy products, fresh produce, grocery andnon-food items.

One feature lets customers select fruit andvegetables according to their own “ripeness”preferences.

Safeway Personal Shoppers process and compile ordersin area stores, and deliveries occur within a two-hourtime slot selected by the customer. Online shopperspay a US$9.95 per-order delivery charge, the same feeassessed by Albertson’s.

As an added option, Albertson’s offers in-store pickupof orders placed online for a service fee of $4.95.

Shopping Spree

Safeway’s GroceryWorks currently operates in Portland,Oregon; Vancouver, Washington; and Sacramento, SanFrancisco, San Jose and the Pleasanton/Tri-Valleymarkets of California.

Schehr said the online grocery scuffle islikely to pick up steam on the U.S. east and west coastsand eventually migrate to the heartland.

With 1,759 stores in the United States and Canada, Safewayrealizes annual sales of $34 billion.

4 Comments

  • I find it interesting that supermarkets in the US have taken so long to integrate their physical and online offerings. It must be related to scale. The bigger you are, the more complex the solution must be.
    My company developed and launched an online supermarket 7 years ago on the little island of Barbados that delivers every item in the store to the customer’s door, provides loyalty points and even collects returnable bottles with the AM ount debited from the final bill.
    The supermarket (www.supercentre.com) was profitable in its first year. No extra warehouses, no specialty equipment.

    • Although Webvan’s service was great, they failed to overcome two fundamental constraints. The first constraint was that the majority of people don’t order simply because they can’t be home to receive delivery. The second constraint was that the first constraint causes excessively high delivery costs.
      Safeway faces the same two constraints, but both will vanish when storage/delivery boxes are placed outside of consumers’ locked front doors.

  • Well, this should be an interesting battle.
    However, I still believe that Webvan was a premier service, providing a great selection of produce as well as excellent customer service.
    Safeway does not offer either and their prices are consistently high. If Zanotos – a smaller chain – offered delivery service, that would be great. But Safeway & Albertson’s can be compared to HP and Compaq, too large to offer quality goods at a great price.

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