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Shaw's plans to leap online

New service part of Net strategy

Shaw's Supermarkets said it plans to jump into the online grocery market and compete head to head against Peapod and Stop & Shop, taking a chance on a business where failure has been commonplace.

Larry Johnston, chairman and chief executive of Shaw's owner Albertsons Inc., said the company was not moving into online sales because it sees big profits there, but because it wants to build an Internet connection with its customers.

"To be honest with you, we're not really doing this for the 1 or 2 percent of the people who might some day want us to deliver groceries to their home," he said in an interview at The Boston Globe. "We're doing it because we believe that the Internet and having a personal portal with your grocery company will be the key catalyst to driving people to change the shopping process in our stores."

Johnston would not divulge the timetable for the launch of the Shaw's online grocery business, but said the service was moving roughly west to east across the company's supermarket divisions. It will be called Shaws.com in this market, he said.

Albertsons bought the 204 Shaw's and Star Markets in New England from J. Sainsbury PLC in March for $2.1 billion. The acquisition gave Albertsons, based in Boise, Idaho, more than 2,500 grocery and drugstores in 37 states with sales of more than $35 billion.

The online grocery business was once crowded in Massachusetts. Even Shaw's experimented with the concept in 1996 but dropped out after less than a year. Four other major competitors, including Webvan, HomeRuns, Streamline, and Shoplink, went under in 2000 and 2001. Peapod was the lone survivor, propped up for a time by infusions of cash from Royal Ahold, the parent company of Stop & Shop. Royal Ahold eventually bought Peapod in 2001.

Peapod, headquartered in Chicago, now says it is profitable in all of the markets it serves, but it doesn't face competition from a large company like Albertsons. Peapod said the company has been expecting Albertsons to launch in several markets it serves.

"It won't be their core business," Peapod spokeswoman Elana Friedman Margolis said of Albertsons. "It's our core business. We've been doing it for 15 years."

Patti Freeman Evans, a retail analyst with Jupiter Research, said she thinks the online grocery market is big enough for more than one competitor. She said the reason so many online grocers failed was because their costs were too high, not because they lacked customers.

Jupiter estimates online grocery sales will hit $2.4 billion this year, or about 0.4 percent of total grocery sales, up from $1.1 billion in 2002. By 2008, Jupiter forecasts such sales will be $6.5 billion. That would be about 1 percent of overall grocery sales, but enough to make groceries the third-biggest online retail product behind apparel and personal computers.

Albertsons and Peapod have slightly different approaches to the business. Albertsons takes orders online and has employees shop for and box the ordered items in local stores. Albertsons charges $9.95 for home deliveries of any size and $4.95 for orders that are picked up at the store. It accepts no manufacturers' coupons and requires a customer to be home to accept a delivery.

Johnston said the Albertsons approach allows the company "to break even or be slightly profitable." He said the company tried distributing goods from central warehouses, but found that approach wasn't profitable.

Peapod fulfills orders from central warehouses in some markets and what it calls "warerooms" in this area. Warerooms are 7,000-square-foot supply depots located atop some existing Stop & Shop stores. Employees pick and pack individual orders.

Peapod charges $9.95 for home deliveries where the tab is $50 to $75, $7.95 for deliveries where the tab is $75 to $100, and $4.95 for orders greater than $100. Peapod accepts manufacturers' coupons and, like Albertson's, requires someone to be home to accept deliveries.

Peapod said it is the biggest online grocer in terms of sales, but Johnston said Albertsons covers the widest geographical area. The company's online business currently serves Seattle, Los Angeles, San Diego, Dallas, Philadelphia, southern New Jersey, Portland, Ore., San Francisco, Salt Lake City, Las Vegas, Sacramento, and Boise.

Johnston said the online grocery service offers Albertsons another way to serve customers as well as build an Internet connection with them. He said the Net will play a growing role in the grocery business, suggesting consumers may some day download shopping lists on to store scanners that can help them move through stores more quickly. The Internet will also allow grocery stores to market specific products to consumers based on past purchases.

To prepare for its high-tech future, Albertsons is investing $500 million this year in new store technologies, everything from wireless capability to global positioning systems.

"So far I think there's only been one company in the world that's been able to monetize the Internet. That's eBay," said Johnston. "My goal is to be the next one."

Bruce Mohl can be reached at mohl@globe.com.

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