Safeway Inc. (NYSE:SWY), a future leader
Safeway currently has an online home delivery service called Grocery Works available in about six different markets. Safeway Inc. (NYSE:SWY)’s Senior Vice President of Finance and Investor Relations has indicated that Safeway does not see their online efforts as a vehicle for growth. She has indicated that the services are useful for those who have a hard time moving around or are purchasing large items that are heavy to carry. It appears that Safeway has viewed home delivery as a way to offer extended customer service to patrons who are need of home delivery services.
Tesco, Britain’s biggest supermarket chain has recently announced that it is considering a bid for Safeway Inc. (NYSE:SWY). In June, Tesco struck a deal with Safeway to inject $22 million into Grocery Works in return for a 35% stake.
Tesco has invested close to $60 million in its store-picking system, where online orders are fulfilled from the shelves of retail locations. The company has built up a profitable online food business with a turn over of approximately $450 million a year. Tesco is looking to expand the success of their online delivery model to Safeway Inc. (NYSE:SWY) stores across the U.S. With the acquisition of Safeway, Tesco could make the grocery retailer the leader in the online home delivery market.
As an investor, carefully monitor the Tesco acquisition of Safeway Inc. (NYSE:SWY) and the roll out of Grocery Works to new markets. Tesco has a proven online business model that should translate well to U.S. markets. The benefit of using Tesco’s model is that it leverages the already established Safeway retail locations as fulfillment centers.
The bottom line
The front-runners in the online grocery business will most likely be Amazon.com, Inc. (NASDAQ:AMZN) and Safeway Inc. (NYSE:SWY). Amazon will rapidly expand to several markets once they have proven a successful revenue model in its test markets. The company runs operating margins of less than 1% and will need to rapidly expand Amazon Fresh to several markets to show significant earnings from home delivery.
Safeway Inc. (NYSE:SWY), with the help of Tesco, will leverage the use of preexisting retail locations to penetrate the market. Tesco already has a proven online grocery and home delivery system. Carefully watch Safeway and Tesco as they deploy their Grocery Works system to multiple markets across U.S.
The majority of retailers such as The Kroger Co. (NYSE:KR) and Wal-Mart Stores, Inc. (NYSE:WMT) will most likely wait in the wings until other retailers establish the demand for online grocery shopping and home delivery. Once customer demand has been established, expect to see these grocery retailers enter the online grocery market in full force.
The article Emerging Leaders in Online Grocery Shopping and Home Delivery originally appeared on Fool.com and is written by Ryan Sullivan.
Ryan Sullivan has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com. Ryan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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