Why Web Supermarkets Failed

Web supermarkets were featured in Don Peppers and Martha Rogers’ first book, The One to One Future. Peapod, a Web supermarket, was used to explain how one-to-one marketing was the wave of the future. Unfortunately, Peapod is in trouble today, and most of its competitors have failed. Why? The reason is not difficult to discover. Supermarkets have become so competitive that their profit margin is only about 1 percent. That means that out of every dollar you spend there, the store gets only a penny in profit.

A Web supermarket has to operate in that environment. It has to take that penny and use it to pack customers’ orders in boxes (using either low-cost workers or high-cost technology), put the boxes in refrigerated trucks, and deliver them to houses scattered all over a metropolitan area. No one can make any money doing that, and no one did. The Web supermarkets had to charge more than bricks-and-mortar supermarkets, but even the extra charge did not pay for the service they were providing.

Furthermore, most Web supermarkets failed to achieve the profits from the impulse buying that takes over when people visit a real supermarket. No one goes to a supermarket to buy a quart of milk and comes home with just a quart of milk. But if you are ordering on the Web, you haven’t made the investment to get into your car and drive to a supermarket, park, find a cart, wander down the aisles, and then wait in line at the checkout counter. Everyone wants to make that investment worthwhile, so people pick up a few more items while they are there. A buyer on the Web who needs only a quart of milk doesn’t see all the colorful vegetables piled up at the entrance. She doesn’t see the ladies handing out samples to eat. She doesn’t see the magazines at the checkout line. Her only investment is the $10 delivery charge. To avoid that delivery charge, she decides to pick up the milk at the 7-11 on her way home from work.