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Report: Online Grocery Sales $10.8 Billion in 2003

Despite projected sales of $10.8 billion, the online grocery market will represent less than 2% of consumer packaged goods revenues in 2003, according to Forrester Research.

A recent report, "On-line Grocery Exposed," found that online grocery sales will continue to be held back by limited geographic availability, delivery and membership fees, a small target audience, and uncertainty about the market itself.

"There's a lot of hype around on-line grocery sales, but the reality is that, for the next five years, it will remain a tiny market," said Maria LaTour Kadison, senior analyst in Forrester's Online Retail Strategies service and author of the report.

The report noted that there are two types of retailers in the online grocery market: full-service grocers and specialty sellers. Full-service grocers, like Peapod, are constrained by the costs and limitations of delivering fresh and frozen products, and therefore are currently struggling to develop a profitable operating model.

Forrester said that despite a compounded annual growth rate of 92% over the next five years, full-service grocery sales will only reach $4.5 billion in 2003, less than 1% of total industry sales.

Specialty sellers like Netgrocer, however, will be buoyed by fewer market constraints and the rapid overall rise of on-line retail sales, Forrester said. They are predicted to climb to $6.3 billion in online sales by 2003. This category will be driven by online gift sales, which will comprise half of all specialty revenues.

"While it would be easy for companies to downplay the online market, the prospect of 15 million households making specialty purchases online will prove too important to ignore," Kadison added. "Manufacturers will look for ways to exploit the Web, like building loyalty, learning more about the buying habits of online consumers, and driving off-line sales through online promotions."

The report also advised full-service grocers to expand their offerings, and said that manufacturers should limit the number of products they sell directly to consumers online, steering consumers to the grocery sites instead.