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 / First Quarter 2000 / Issue 18(originally published by Booz & Company)


To Hal Varian, the Price Is Always Right

Nonetheless, traditional supermarkets, with the notable exception of Hannaford, remain skeptical. Some have been convinced by their own experiments that online grocery delivery is a non-starter. Kroger, for instance, recently canceled a six-month experiment in Huntsville, Ala., because of lack of interest in the service. "It's easy to draw the wrong conclusions from a half-hearted trial," says Thomas Eisenmann, a professor at the Harvard Business School and e-commerce expert. "It may be wishful thinking, trying to prove to yourself that it can't be done."

But supermarket executives say the business models themselves are flawed. "Even if some of the (logistical) questions have been resolved," says Kroger's Mr. Rhodes, "we are not convinced this can be done at a profit."

Indeed, most Web grocers currently are loss-makers, and few have had much impact, even after several years in business, a fact that may have lulled traditional supermarkets into complacency. Homeruns, for example, was shut down for months in 1998 while it sorted out problems from damage to its warehouse and kinks in its Internet site. And Peapod saw its share price plummet in November 1999 amid rumors it was running out of cash.

Online grocers will need higher volume to put themselves in the black. Webvan has ambitious expansion plans. Homeruns is hoping to enter new markets to boost its business. has set up shop on the outskirts of Washington, D.C., and will open for business in the bedroom communities of Chicago, Ill. and New Jersey soon. has also added other services - such as dry cleaning - to its mix, and plans to offer others.

Reprint No. 00108


Michael Schrage, [email protected]
Michael Schrage is codirector of the MIT Media Lab’s e-Markets Initiative and a senior adviser to the MIT Security Studies program. Mr Schrage is the author of Serious Play: How the World’s Best Companies Simulate to Innovate (Harvard Business School Press, 1999).
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