The first in a new breed of Internet grocer is rushing into the Washington market, betting millions of dollars that it can reliably deliver milk, produce and other items to the doorsteps of harried consumers willing to pay extra for the convenience of online shopping.
Streamline.com Inc., which has been operating in the Boston area, is expected to announce today that it is open for business in a territory covering much of Fairfax, Arlington and Montgomery counties, as well as Northwest Washington.
"I don't think the world was really ready two years ago for Streamline.com," said Timothy DeMello, the company's chief executive. "We really needed the Internet to show customers how to buy books and other items before they purchased perishable products. Now they're saying, 'What else can I do?' "
Like its competitors around the country--Shoplink.com Inc., Webvan Group Inc. and Peapod Inc., to name a few--Streamline must overcome daunting logistical problems and deep consumer skepticism to claim a piece of the $450 billion U.S. supermarket industry.
"This is not like buying electronics and books," said Jeff Metzger, publisher of the Columbia, Md.-based trade publication Food World. "People still want to look at the meat and smell the produce."
Nearly all online supermarkets are newcomers to the grocery business. A few traditional grocers, including Hannaford Brothers Co. in New England, have started selling products online, but most have kept their distance. They say they remain unconvinced that online sales will ever amount to a substantial portion of supermarket revenues.
"There are a considerable number of unanswered questions with online grocery distribution," said Barry Scher, a spokesman for Giant Food Inc., the Washington area's largest grocery chain. "And the companies that have started up aren't making any money."
"We don't know how well they'll be able to pull it off, given the requirements of everything from beginning to end," said Debra Lambert, a spokeswoman for Pleasanton, Calif.-based Safeway. "Right now, there's no economic model that has been successful."
Online grocers managed to ring up a mere $115 million in sales last year, according to Jupiter Communications, which closely follows electronic commerce. By 2003, that figure is expected to balloon to $7.3 billion, but that would still be less than 2 percent of overall supermarket sales.
Streamline, of Westwood, Mass., reported losses of $11.3 million last year. Its sales amounted to $6.9 million, and it will spend close to that amount to build a warehouse in Gaithersburg and fund other start-up costs.
The company has quietly signed up 200 customers in the Washington area in recent weeks, charging a flat fee of $30 a month per household for weekly delivery. In addition to groceries, Streamline plans to offer dry cleaning and tailoring, video rentals, flowers, and package delivery.
For now, the company has targeted the wealthiest pockets of the region. Officials say they will gradually expand the service area. DeMello predicts that in two years the company will have more than 10,000 customers in the Washington area.
Streamline.com and other Net grocers believe the pressures of parenthood, demanding jobs and traffic congestion will persuade consumers to contract out their grocery shopping, much like they have hired nannies and housekeepers, or neighborhood kids to mow their lawns.
But they face enormous challenges. In an industry with razor-thin profit margins of less than 2 percent, they must figure out a way to make money. They must boost sales volume and retain consumers even though they have a smaller selection and sometimes higher prices. Delivery delays and other mistakes may send consumers back to the regular grocery aisles.
Many have tried and failed. All Things Delivered, Shoppers Express and Shopping Alternatives are just a few Internet retailers that have disappeared from the Washington market. The companies had underestimated start-up costs and may have sprouted too early.
Most of the surviving online grocers are better capitalized, and many of them have distanced themselves from traditional supermarkets. Once, many Net retailers filled orders by picking items off supermarket shelves. Now more online grocers are ordering directly from manufacturers and building their own warehouses. Perhaps the most aggressive plans are being made by Webvan, which has started service in the San Francisco area and will spend $1 billion to build large automated warehouses in 26 markets.
In the Boston market, where many of the big Net grocers compete, Peapod is the leader, charging $7.50 per delivery for orders of $60 or more. There is no fee for orders under that amount. Customers must be at home to receive their orders.
Shoplink.com charges $25 to $35 per month for deliveries made in chilled containers. Customers pay up to $49 per month if they want refrigerators placed in their garages.
Streamline delivers once a week, installing one of its own refrigerators for no charge in customers' garages or basements. Streamline employees enter by using an electronic key pad or lock box.
After things have been set up, customers can roll their cybercarts through the aisles of the company's Web site, picking up fruits, vegetables, cereal and diapers. The orders are zapped to the company's computers in Massachusetts and then sent to the warehouse. Using hand-held scanners, employees quickly pick out the orders from shelves of merchandise.
But it's not always so simple.
Like many online start-ups, Streamline had to work through a series of technical glitches. And it makes errors once in a while, like delivering late or packing the wrong product.
"One time they forgot to deliver diapers," said Amy Weil, a lawyer who lives with her husband and two children in Needham, Mass. "That was a huge thing."
For the most part, though, Weil is a convert. "It's just one more thing I don't have to worry about," she said. "Just getting to the grocery store, and putting the kids in the car. That, to me, was the hard part. And then . . . you always find something in the grocery cart that you know you didn't put in there."
When Streamline does make mistakes, it endeavors to make up for them. Employees call to apologize and send out gift certificates. The company's policy is to take back anything if customers aren't satisfied. It also tries to "buy forgiveness," which means it does nice things for customers in hopes that they won't complain about a small error. "We really want them to say, 'So we have a smaller box of Cheerios, but remember when they gave us free stamps or a tree for Arbor Day?' " DeMello said.
Virtual shopping has its own dangers. Consumers often do silly things, like accidentally ordering 10 huge jugs of orange juice instead of the set of 10 juice packs. Some have forgotten to inform the company that they changed the password on the garage locks. More recently, a Streamline employee making his first delivery to a Washington area home was surprised by what he said was a pit bull tied up in the garage.
For some customers, online hassles and fees may be enough reason to eschew Internet grocery shopping. Traditional supermarkets still offer the best selection and, because they have more buying clout with manufacturers, they can pass on more savings to consumers. Although Streamline officials say their prices are comparable to those offered by local grocery stores, they do not offer manufacturers' promotions or accept coupons.
Beyond those issues, other consumers say they intend to stick with their supermarkets because they believe they are better shoppers than any online grocer could be.
"My wife likes to shop for organic produce," said Hank Hoffman, a Web designer who stopped in to his neighborhood Giant store in Bethesda over the weekend. "She's very particular about her fruits and vegetables, and I guess I am, too."
Staff writer Leslie Walker contributed to this report.
Business: Shops for and delivers groceries and provides other services -- package pickup, shoe repair, dry cleaning -- that customers order over the Internet.
Headquarters: Westwood, Mass.
D.C. area warehouse: Gaithersburg
1998 revenue: $6.9 million
Founder and chief executive: Timothy DeMello
Web address: www.streamline.com