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Online grocers remain upbeat despite lack of demand

Most people still prefer the supermarket to the Internet

(Keystone Archive)

The Internet has revolutionised the shopping habits of millions: today we make all sorts of purchases online from airline tickets to books and CDs. But when it comes to food shopping, the vast majority still prefer driving to the supermarket than surfing the net.

A few years ago, Microsoft chairman, Bill Gates forecast that 30 per cent of American groceries would be sold over the Internet by 2005. There's a long way to go because the figure today stands at just one per cent. In Switzerland, e-food sales account for an even more meagre 0.01 per cent.

Making matters worse, the biggest on-line grocery in the United States, Webvan, has just gone bust after chalking up a huge loss of $57.1 million (SFr101 million).

One could be forgiven for thinking that such bad news would have dented the confidence of e-grocers in Switzerland, but that does not seem to be the case.

"It's a major change in consumer habits and it will take time to take root," says Christian Wanner, the CEO of "Le Shop", an on-line grocer based in canton Vaud. "What we see though is that once people have tried it they don't want to go back."

Le Shop was founded in 1998 by a group of local entrepreneurs and has attracted investment from the retailing group, Bon Appetit, and from Deutsche Bank.

It has sales of just SFr1.2 million ($670,000) a month but Wanner says his business is growing by 15 per cent a month. The company has yet to show a profit, but Wanner hopes it will be in the black by 2003.

Switzerland's largest retail chain, Migros, launched its on-line service in September last year and is also operating at a loss, though its turnover has increased 50 per cent to SFr6 million.

"When you consider that there is no marketing or promotion I think things are going pretty well," says Mark Lang, the managing director of Convenience House, Migros' on-line subsidiary.

Both Migros and Le Shop have poured substantial quantities of cash into setting up their on-line businesses. Le Shop has swallowed SFr20 million over the past four years, while Migros has also sunk millions into its service.

There are few online grocers in Switzerland but with such a small market, competition remains fierce.

For Lang, Convenience House has a big advantage in being able to use Migros' reputation for fresh, quality produce. He also points to the speed of delivery: an order made by 1000 will be delivered to the customer by 1700 the same day.

But Wanner argues that Le Shop has the edge because it is exclusively an online operation. "We believe our web site is the easiest and most convenient to use and our product range is a third larger than that of our competitors," he says.

Both Convenience House and Le Shop charge a flat fee of SFr9 for their service. The typical customer is not oft-cited single urban male professional but rather a married mother who prefers to shop from home rather than deal with the hassle of taking the kids to the supermarket.

Neither Lang nor Wanner are concerned by the recent failure of Webvan in the United States.

"I think there were special factors," says Wanner. "The business model was very capital intensive and they spent a lot building up special warehouses and a dedicated distribution force."

Le Shop has a distribution agreement with the post office and makes use of existing warehouses.

Wanner and Lang prefer to point out the British experience where the online market is worth SFr1 billion and where the biggest retailer, Tesco, makes two per cent of its sales online.

Other Swiss retailers such as Coop and Denner have no plans to establish an online service but will keep an eye on the existing players to make sure they're not missing out.

For the moment, it appears they may be right to hedge their bets until there is firmer evidence of a change in the nation's shopping habits.

by Michael Hollingdale


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