It’s Uncertainty Dot Com in Online Grocery World

Will online grocery shopping succeed? The jury is far from in as Internet commerce is in the beginnings of a shakeout. It has gone from being the darling of Wall Street to the doghouse, its once bright future in question.

Like almost everything else on the Internet, online grocery companies have been infused with capital, but they aren’t making money and their stocks have been hammered. That combination has diminished their chances of raising more money any time soon, and some will run out of cash within a year, analysts say. Although Internet grocery sales are expected to rise from last year’s $200 million to $7.5 billion by 2003, even then the sellers will represent less than 2% of total grocery sales, according to Jupiter Communications Inc.

Bigger players are starting to test the waters, which will increase the rate of consolidation. Just in recent weeks, Royal Ahold NV, one of the largest grocery companies in the world, said it plans to buy a majority stake in Peapod Inc., an online grocer that lost a planned $120-million cash infusion from investors after its CEO resigned in March for health reasons.

Safeway, owner of Vons and Pavilions, has said it will invest $30 million in GroceryWorks.com of Dallas and plans to begin delivering groceries in Southern California at the end of next year.

Already hundreds of millions of dollars have been raised to fund online grocers such as Webvan Group Inc. and HomeGrocer; one of HomeGrocer’s backers is Amazon.com, the online merchant. Last year HomeGrocer lost $78 million, and investors showed little interest in its initial public stock offering in March.