Paper, Plastic or Clicks -- Online Sales Lift Grocers

The sleepy supermarket industry is finally stepping into the future.

While grocers have long been regarded as lumbering retailers that haven't changed much in the past 40 years, supermarkets are now focused on improved customer experiences and ventures into cyberspace.

In particular, the once-maligned online grocery business is helping supermarkets stave off competition, boost margins and gain customer loyalty.

Much has changed since dot-com excess poster child Webvan went out of business in 2001. Large chains such as Safeway (SWY), Supervalu (SVU), Kroger (KR) and Ahold (AHO) have online service available in various markets -- and surprisingly, these businesses actually add to the bottom line.

One would think the grocers' online business would cannibalize in-store sales and make the proposition a zero-sum gain. A customer who does his weekly shopping on the Web won't need to load up the kids in the minivan and head to the store, right?

Wrong, says Rich Tarrant, CEO of MyWebGrocer, which builds infrastructure for online grocers.

He says that data from shoppers using loyalty cards show that online customers spend 21% more with the supermarket because they're using the online services for their big weekly purchases but still going to the store to replenish items such as milk and eggs. The convenience factor of the online business builds loyalty to that particular store, Tarrant says.