It seems you can buy everything online these days. From stocks to CDs, airline tickets to rare stamps, e-businesses are there to cater to your every need. But what about groceries?

It would seem that groceries would be the last thing you'd expect to find online vendors hawking. After all, it's all right if the CD you ordered from the Web shows up in the mail a week later, but the same is not true for a loaf of bread or a bag of tomatoes. And shipping a case of pop to your home from a warehouse in Florida doesn't make good financial sense. This has left the market relatively open. Each e-grocer business is forced to start with a small, localized operation and slowly expand into other areas as funding allows, unlike other e-businesses which, being mail-based, operate without such physical boundaries.

Nonetheless, online groceries are springing up across the continent, and they're receiving significant funding. Amazon.com recently bought 35 per cent of Seattle, Wash.-based HomeGrocer.com for US$42.5 million, and Foster City, Calif.-based Webvan.com, which was established in June, is currently valued at US$4.3 billion.

The market for online grocers is small right now, with the combined annual sales of all the major American e-grocers at only US$120 million, or the equivalent of four brick and mortar supermarkets. However, a recent study by Andersen Consulting predicts that number could reach US$85 billion by 2007.

The U.S. isn't the only market where online groceries are starting to take off. In Canada, there are also e-grocers, such as Toronto-based GroceryGateway.com.

Bill Di Nardo, president and CEO of GroceryGateway.com, says it's not simply convenience that attracts consumers to his site, but the wealth of information available as well. "We've got some pretty interesting features that make it a fairly rich environment, including pictures of all the products," he says. "Many of the items have their nutritional information as well. You select the product by the picture. Although you can use text only, most of our customers prefer to use the picture-based shopping."

Di Nardo says that he sees the online grocery market expanding rapidly over the next few years — his customer base is doubling every three weeks. This leads to a number of logistical issues, most notably that of scaleability — not from an Internet hardware point of view, as with most e-businesses, but in terms of the physical infrastructure required to deliver its services.

"We run a clustered server environment and it's very easy to add more hardware as required.

"We do use some outside agencies, but generally we do it all in-house," says Di Nardo. "We're running on our own servers, and we've got a T1 coming in from MetroNet."

He adds his company is "one of the anomalies in e-commerce" because it builds brick-and-mortar components to its strategy.

"We hire all the drivers, the pickers, we're building a fulfillment centre right now. So trying to scale physical infrastructure at the speed of the Internet is challenging," he says.

Besides planning for scaleabillity, Di Nardo notes that forming partnerships is important to get an e-grocery up and running and keep it there. Grocery Gateway is currently partnered with Longo's Supermarkets (which provides the food), Royal Bank (which provides financial transaction support), and Compaq and IBM (which provide technology.) Forming partnerships is important for e-grocers not only because of the cost savings it offers, but because some partners can help get the required financing arranged, something that's sometimes tough to do in Canada. For example, HomeGrocer.com, a Vancouver-based e-grocer, was forced to move to Seattle to raise some much-needed venture capital.

"In Canada, it's very challenging to get financing," says Grocery Gateway's Di Nardo. "It took us quite a long time to do it. Given the nature of some of our other relationships, it helped, so strategic partnering can be quite advantageous. I'm glad we were able to do it here in Toronto."

But how long can it be before other, more traditional, grocers get in on the online action? Di Nardo doesn't claim to be worried yet. "Loblaws is running a trial out in Oakville, IGA is running one in Quebec," he says. "I wouldn't say they're new to the space, they just haven't embraced it yet, and given the cost of building the system properly, I'm not sure they're racing to embrace it either."

Geoff Wilson, vice-president of industry and investor relations at Loblaw Companies Ltd., agrees. "We haven't got any sort of timeframe at the moment. We're really just watching. Nobody's making any money at it right now, so we're keeping a very close eye on what's happening in the industry, and we will determine our next steps based on that," he says.

Loblaw Companies Ltd. is playing the e-grocer game in a way, though. It's selling groceries wholesale to Ottawa-based TeleGrocer.com, another Canadian e-grocer, with a slightly different approach to the online groceries game.

Rather than viewing its limited geographic reach as a handicap, TeleGrocer decided to turn it into an asset by transforming its site into a local portal, selling space on it to other localized e-businesses. Thus, as TeleGrocer's CEO Garfield Coore explains, "You, as a customer, when you launch the software, what you see are local e-businesses for your area."

Local businesses that want to make the leap online can get contracts with TeleGrocer, which will take care of bringing the businesses online and organizing its e-business logistics as part of TeleGrocer's site.

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