Precious few groceries or alcohol beverages are bought on-line even though the Business-to-Consumer (“B2C”) activities of PeaPod, Liquor.com, WebVan, Streamline, and other consumer-direct merchants receive lavish press.

Grocers and liquor store proprietors have not been able to tap the burgeoning Internet market because they lack in-store enterprise systems. (A Senior Vice President of Cisco dismisses cyber-sales sites without underlying enterprise systems as “lipstick on a bulldog.”) Ringing-up sales on an “Internet cash register” for out-of-stock product causes big problems. Liquor store operators also face regulatory hurdles.

Traditional merchants have certain advantages over their consumer-direct competitors — customer bases, brand names, and product expertise. Closer proximity to shoppers’ homes, greater familiarity with regional consumer preferences, and the absence of corporate red tape give smaller operators advantages over larger ones.

Jupiter Communications estimates consumers spent $65 million in 1997 over the Internet on grocery and health and beauty products, and that this market will increase to $4.7 billion by 2002. This projected penetration represents less than 1% of the USA market for grocery and health and beauty products. Raw dollars spent over the Internet, however, underestimate its true value to the grocery industry. Grocers can achieve significant Internet benefits without cyber-store construction or cyber sales. Dorothy Lane Market posts its weekly circular on its Web-site and uses the Internet to query consumers about their preferences.

Business-to-Business (“B2B”) will be much larger than B2C, although it has of yet made few inroads. Numerous factors bode well for its success. Certain large players have used batch-EDI for years, many others routinely transmit manually prepared orders. With 4,000 food manufacturers selling through 20,000 distributors to 110,000 outlets, the industry has little transparency. Different distributors use different product codes and descriptions for identical products from the same manufacturer. (They don’t use standard UPC codes). Because of the lack of product transparency, grocers have trouble tracking rebates, credit memos, and discounts. The industry is too fragmented for manufacturers to deliver direct to retailers.

Despite these favorable (for Internet prospects) conditions, e-commerce obstacles are substantial. Products are high-touch. Distributors are powerful, any Internet exchange will have to win them over. The industry lags others in automating core processes. Pure order-matching is unlikely to succeed because the 20 some enterprise transactions behind each order remain largely unautomated. Grocers will first need to redo core business functions — which will require far more time and money than actual Internet implementation.

The Internet, though, is a powerful motivator for “CRISP-like” systems. The trend benefits both merchants and MicroNEX. Pure Internet companies must wait while infrastructure upgrades are completed. As a veteran grocery and alcohol beverage specialist, with unique enterprise technology, MicroNEX brings practical perspective to to the table — before, as, and after grocers adopt the Internet. Our skills and technology let us help merchants during pre-Internet restructuring. Having forged an early relationship, we stand ready to also be their Internet specialist.