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.


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