Safeway, Tesco team up on net. (MMR Annual Report Safeway).(on-line grocery and home delivery business)(Brief Article)(Statistical Data Included)

PLEASANTON, Calif. -- This year' marked the debut of Safeway Inc. in the on-line grocery and home delivery business.

In January the company initiated its Safeway.com Internet service in the Portland, Ore./ Vancouver, Wash., area, filling orders out of five stores. The service was operated by GroceryWorks, a joint venture in which Safeway holds a 50% stake, while Tesco PLC, the United Kingdom's No. 1 supermarket operator, owns 35%. In mid-March Safeway launched the service in the San Francisco and San Jose areas.

Tesco claims to have the only Internet-based home delivery grocery business that is profitable. GroceryWorks incorporates systems and know-how from Tesco, combining them with Safeway's merchandising capabilities.

Around the same time that Safeway brought GroceryWorks to the Bay Area, its main California competitor, Albertson's Inc., introduced its own Internet grocery business to the region. As a highly affluent, urban market, San Francisco and its surrounding communities constitute an ideal environment for web-based grocery services.

Portland/Vancouver was seen as a good market to initiate the service, since studies indicated that over two-thirds of households have Internet access. In addition, the now-defunct pure-play web grocer Webvan Inc. had enjoyed strong support in the market.

Safeway has chosen to follow the Tesco model of filling orders out of selected stores rather than from a dedicated distribution center. Nearly all of the items available in-store can be purchased on-line at store prices.

The web site is designed to resemble the organization of an actual store to facilitate on-line shopping. Orders are delivered the following day within a customer-designated two-hour time slot between 10 a.m. and 9 p.m. Orders placed before 10 a.m. can be delivered the same day.

Holders of Safeway's Club Card are eligible for a wide variety of specials. A time-saving feature further enables them to access their regularly purchased items more quickly. Customers do pay a $9.95 service charge.

Each order is processed by an employee using a specially designed cart that features a computer displaying exactly which items were ordered and where they are located--a key part of the Tesco contribution. Orders are delivered in special temperature-controlled trucks that contain freezers and refrigerated compartments as well as ambient-temperature zones.