Net supermarkets' next wave

Few would blame Matt Muta if he were to indulge in a chuckle, a whinny, and what some might call his right to have the last laugh.

With the flameout of Internet home-delivery services like Webvan, ShopLink and HomeRuns.com still a fresh memory, the Albertson's vice president of technology is overseeing the steady growth of the company's online operations. On Monday, the Idaho-based supermarket chain began offering service in Portland, Ore. In February, the company branched into the Los Angeles area, and last year it expanded into San Diego and Seattle.

Two years ago, most industry watchers predicted a very different scenario.

Back then, Web-only companies were busily setting up shop in one major city after another. Flush with millions of dollars raised from venture capitalists, these Internet-only supermarkets spent huge sums to build high-tech warehouses and flashy Web sites, and to hire armies of deliverymen. In the end, though, the wild spending broke them.

By contrast, brick-and-mortar grocery outlets with similar Internet ambitions, such as Albertson's and rival Safeway, kept costs down by staying in a couple of markets and shipping groceries out of existing stores. They may look like geniuses now, but Muta, who is vice president of technology at Albertson's, says he doesn't wish to gloat.

"The decision to walk before we ran was a very good plan," he says with more than a mild dollop of understatement.

But even Muta must see the irony: Brick-and-mortar chains, once derided as being insufficiently tech-savvy to make home delivery work, may well wind up as the prototype for the viability of selling groceries over the Internet.

Muta talked with CNET News.com about the online grocery sector and how the Internet figures in Albertson's plans for the future.

Q: What were your first thoughts when you heard about Webvan's business model?
A: I first thought it was a very interesting endeavor. I thought it was something we were working on at the time. It was something I agreed with, from the standpoint of delivering product to the consumer. I saw that as being very attractive.

What did you think when Wall Street, venture capitalists and the media created such a hoopla over these Internet-only grocers?

"The advantage that we have vs. a centralized fulfillment model (favored by Webvan and other online-only grocers) is that we're not building the multimillion-dollar structures."

At the time, there was a lot of hoopla made about a lot of companies. There probably wasn't a better understanding of what they were doing. I think it was the whole idea. It was the hype of the Internet. I think everything looked very attractive.

A lot of the grocers were criticized in the press for supposedly letting the Internet revolution pass them by. Now the traditional supermarket chains look like geniuses.
Albertson's has been working on this process for just over five years. We were very quiet at the outset. Right now, it would seem like the decision to walk before we ran was a very good plan. Making sure we were putting our best foot forward was a very good plan.

Did you support the "wait and see" philosophy back when all the Web-only companies were attracting billions in venture capital? Was it hard to suppress the go-go mentality?
I was definitely behind doing the right thing, exploring the models to the fullest before you implement at a rate that you can't come back from--the rate of no return.

Why did so many companies fail at this business? You had Webvan, Streamline.com, HomeRuns.com.
It's basically because we're playing off all levels of our existing infrastructure. We're using existing labor infrastructure, our existing physical infrastructure, our brick-and-mortar locations, and also our technology infrastructure. There's not a lot of up-front capital that we have to lay out, as opposed to the pure-play start-ups that spent a lot of money. So really, it's just that we have the advantage of being able to take advantage of what we already have.

How different is the Albertson's model from the average dot-com grocer's?
You're starting to hear the buzzword "store pick" again. It's not really rocket science. Peapod was doing it for a very long time. The advantage that we have vs. a centralized fulfillment model (favored by Webvan and other online-only grocers) is that we're not building the multimillion-dollar structures. We are making use of existing structures, existing resources and technologies, and adding the Web front end to it.

The key difference between them and us is that we are playing to our strengths. We've been in the industry for 60-plus years. This is what Albertson's does. We sell groceries. And we see this as not an electronic business. We see this as just another touch point to our customer, another offering to our consumer.

Is it easier to sell home delivery to the public now, or is it more difficult since the dot-com die-off?

"My vision is that you're going to press a pad in your house and your groceries are ordered."

The reality is that we're trying to run a viable business for Albertson's. So there are some requirements for us to do that. We feel that it's necessary, in order for us to give the level of quality to the consumer, (that) there's a fee associated with the service to cover our additional costs to bring this to the consumer. That's different than the approach that the pure-plays took. There was a lot of, "Let's get as many eyeballs as we can by giving away everything for free."

Who is the type of consumer who orders online? Is it your traditional grocery shopper?
It definitely has evolved from when we first started; they were generally male, didn't really order a lot. Now it's completely evolved...We're seeing a very consistent shopper, and it's very much the shopper that shops in our stores today. Generally it's female; a high percentage of female shoppers are visiting our online store. It's very much the same shopper that we see walking through our electronic doors today.

How big is this business going to be?
Oh, that's tough. The way that we're trying to look at this is as an opportunity to gain some incremental volume, increase our share and sales. For me to postulate what it could be...I couldn't tell you. I can only tell you that we're seeing very positive moves in this sector.

You're not really competing against any of your top rivals in the online world yet. Now that Safeway is expanding its Internet business, what plans do you have to expand yours?
Well, if you looked at what we've done over the past few months, you'll see that we've moved into some major markets. I'll tell you that over the next couple of months, you're going to see us move into some other markets...But we also want to make sure that we're going to locations where the awareness of the online shopping experience is already there.

Did you guys buy anything from Webvan after it folded, any customers or technology?
No, sir. No.

Did you learn anything from Webvan's business at all?
We did. There are a lot of things you learn when there's competition out there. A lot of what we learned is what the expectation is, what the wants are, what the changes should be, and what the dislikes are.

Are the markets that you've opened profitable yet?
There are certain things that I can't talk about, but I can tell you there's some very positive things going on.

When Webvan first came out, it claimed it would revolutionize how consumers buy groceries.
I don't think so, because a lot of what was being done really wasn't new. That's why we were very hesitant to say that we had an e-commerce strategy. We have a business strategy. Because the reality of it is, everything that any of us has done is not new. It's a visit to the past. It's the milkman scenario--you know, having ice cream delivered to your house. These are things that occurred years ago.

Is shopping for groceries on a PC a good fit?
This technology, the Internet as we know it today, there are those who will shop via that vehicle and there are those that find it cumbersome. The PDAs...the cell phones are making the process a lot easier...I see such potential for the technology; it's great. Things that you read about when you were a kid, that were science fiction then, are coming to reality right now.

What will grocery shopping be like 10 years from now?
With all the advances, they could know your preferences and ship it to you based on what you have in the fridge. These are all technologies that exist today. It's just not a practical thing for everybody's home...My vision is that you're going to press a pad in your house and your groceries are ordered.