ARME undergrads study online grocery businesses

From left, seniors Stefanie Jaron, Deon Harris and Kerner Smith give their presentation on online food retailers in Agricultural, Resource and Managerial Economics 466 last semester in Warren Hall. Robert Barker/University Photography

By Blaine P. Friedlander Jr.

Millions of people regularly order books, CDs, gifts and clothing over the Internet. And some food retailers also are offering web surfers the opportunity to buy groceries. But profits in this food business are scarce.

Retailers know that most customers long to thump cantaloupes, look for ripe tomatoes and squeeze the Charmin. But the students found that the retailers of "consumer direct" -- the industry's term for selling groceries over the Internet -- target a specific niche, mainly mid- to upper-income customers too busy to shop for food.

While few grocery retail establishments are in this market, the students in the Cornell class Agricultural, Resource and Managerial Economics 466 found that every participating grocer has a different method of bringing goods from store to door. Because consumer direct marketing of groceries from the Internet is still in its infancy, the marketplace has yet to shake out clear winners. The students also found few, if any, grocers are earning a profit in this market.

The 29 students in the class focused on four Internet-based food companies: Streamline Inc. and Hannaford HomeRuns, both from the Boston area; Schnucks, from the St. Louis area; and NetGrocer, from North Brunswick, N.J. The companies distribute their groceries from warehouses as well as from store shelves, and offer at-home delivery -- in the case of NetGrocer, anywhere in the country.

The students found that these retailers have learned that impulse buying drops steeply when a consumer elects to buy food from home, but the average grocery purchase soars four-fold, from $25 to $100 when consumers use the Internet. The students believe the increase in buying more than makes up for the loss of impulse purchases.

The formal report was written by seniors Stefanie Jaron of Suffern, N.Y., and H. Kerner Smith of Sudbury, Mass. Six other students participated in the oral presentation: junior John Fogarty, Nescopeck, Pa.; junior Deon Harris, Racine, Wis.; senior Alex Park, Chesterland, Ohio; senior Sean Severin, Bethpage, N.Y.; senior Catherine Strauss, Memphis, N.Y.; and senior Andrew Urbine, State College, Pa.

Part of Cornell's Food Industry Management Program, the class gave the students an opportunity to learn about a critical marketing issue in-depth and perform economic research at the undergraduate level, according to Debra Perosio, Cornell extension associate in agricultural economics and the class's instructor.

"Throughout the semester students developed questionnaires, interviewed top executives in the industry," she said. "They really enjoyed the experience being something different from a traditional class. They were eager to roll up their sleeves and dig into something."