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François Bouchard is no technical wizard, but that hasn't stopped him from jumping into the express aisle of e-commerce.

Mr. Bouchard owns a store in the south of Ottawa called the The Country Grocer, but four months ago he expanded to the entire city -- through the Web.

The graduate of the University of Ottawa's commerce program has hooked up with The Peachtree Network, an association of small Canadian grocers trying to take advantage of their industry's move to e-commerce.

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"I'm not a computer geek, but I'm young enough to know there's a market for it," says the 32-year-old entrepreneur.

Or is there? Depending on who you ask, on-line grocery shopping is either one of the most obvious avenues for e-commerce or a high-tech ripoff of an outdated idea -- the door-to-door milkman -- that stands little chance of ever making much money.

The barriers are many: high cost structures, lack of consumer demand, competition from entrenched players and the logistical nightmare of getting fresh produce and frozen goods to the buyer's door.

Mr. Bouchard and others in the industry say the concept of e-groceries is just in its infancy and already paying dividends. "There are two sides to this story," admits Mr. Bouchard. "Some say this will be great. Others say people will never buy their cantaloupes over the Internet."

On-line grocery shopping will only amount to a few million dollars in Canada this year, according to Perry Caicco of National Bank Financial, the author of The Green Mile, a report on e-groceries issued last week.

The annual on-line market is to grow to between $500-million and $700-million by 2003 -- but that will be only slightly more than 1 per cent of the market.

In the United States, where e-commerce -- including on-line grocery shopping -- is more popular than anywhere else on the planet, the e-groceries market is expected to hit somewhere between $7.5-billion (U.S.) and $10-billion by 2003, from about $300-million this year.

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But this potentially super market isn't stopping on-line supermarkets from attracting new players -- and investors -- like a free sample booth in the frozen meats section. There are at least three national or regional on-line operations in Canada, not to mention a flurry of U.S. networks and at least one major venture in Britain.

The market got a little busier this week when Loblaw Cos. Ltd. of Toronto, Canada's largest grocery chain, announced that it intends to increase its investment in the e-grocery market with the launch of a new pilot project in Mississauga.

Loblaw is making the move despite serious reservations about the virtual sector's profitability. "To the best of our knowledge, nobody's making money on it yet," said Geoff Wilson, Loblaw's vice-president. "E-commerce is booming . . . but there's not a lot of bottom line."

Analysts share that concern, arguing that on-line grocers will have to overcome some serious hurdles if their businesses are to become big moneymakers.

Paul Inglis, vice-president of A. T. Kearney Inc. in Toronto, a management consulting firm that specializes in supply-chain issues, says no one has yet figured out how to profitably sell groceries over the Internet. "Nobody seems to have been able to crack the code," he says. "Maybe there's a way to do this -- but I'm skeptical."

Many analysts say there's money to be made from on-line grocery peddling -- but probably not that much. Jordan Worth, an analyst at International Data Corp. (Canada) Ltd., says on-line grocery shopping will find its niche but won't grab enough market share to threaten the giant chains. "I can't imagine it being a category killer."

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The big problem, analysts say, is "the last mile" problem, which simply describes the dilemma of how to pick out and bag an order of items from a grocery store or warehouse, and then deliver it to a home without huge cost hikes. Other issues, such as ensuring the accuracy of orders and speed of delivery, are solvable, they say.

National Bank Financial's Mr. Caicco says he expects the industry will become profitable within four or five years, but not before there are major changes, including the construction of dedicated warehouses. This path has been blazed by WebVan Group Inc. in the United States. That's part of why he predicts that the industry will be dominated by one or two big players that operate almost exclusively in urban areas.

None of that pessimism has stopped investors. On-line grocers in North America have raised more than $1.5-billion in venture capital over the past 18 months.

Grocery Gateway Inc., which so far operates only in the Toronto area, landed $32-million (Canadian) in financing in November.

But analysts insist that none of these well fortified players is yet turning a substantial profit. The key is determining how much new infrastructure to build.

One camp advocates a "clicks and mortar" approach, where established grocers simply expand onto the Web and use existing warehouses and stores. This approach takes into account smaller players that would ally themselves with large grocery chains.

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Or, is it more efficient to build new warehouses -- likely operated by companies other than the grocery chains -- that are dedicated exclusively to on-line sales?

Mr. Caicco falls into the latter camp. He argues that on-line operations need to operate their own warehouses and cut out at least four or five levels of the dozen or so stages of handling between the food producer and the consumer. "You have to build a system for home delivery. You can't just take the existing system and bend them to home delivery."

He acknowledges that the warehouse model will require deeper pockets and enough customers to make the sizable investment worthwhile, but he insists it's the only long-term solution.

Local grocers who set up their own on-line delivery systems, whether or not they are part of a larger organization like The Peachtree Network, may make short-term profits, but their model is unlikely to survive the test of time, says Mr. Caicco. "I don't think you can make money doing that -- I don't think you can come close."

But the warehouse question isn't the only variable. Some on-line grocers, such as Ottawa's TeleGrocer.com, don't own stores or warehouses at all. That company has set up an arrangement with Loblaw that allows the on-line specialist to act as an independent operator who has special access to the store's shelves.

Others stick to non-perishable goods to avoid the problems associated with fresh produce. One of those is Quick.com Inc., a partnership between Sentai Software Consulting Corp. and Leading Brands Inc. The two companies plan to launch Quick.com across North America in the second quarter of this year.

Despite the flurry of ventures, most analysts remain unconvinced. Mr. Caicco says there is much greater potential in selling non-grocery goods and services -- such as video rentals or dry-cleaning. "You have to really build credibility with the food," he says. "Then you've built a next-generation Fed-Ex. Then you've built a next-generation home-delivery system."

The margins are too low for a business delivering only groceries, he says. "Right now, supermarkets are built so that the consumer does all the work. And they still only make 1.5 per cent after taxes and fixed costs."

But Mr. Caicco and other analysts agree that there's a market for people willing to pay a premium -- between about $3 and $10 for each delivery -- to have their groceries delivered to their door.

Despite the exponential growth in on-line grocery shopping, Mr. Caicco adds, it won't be enough to threaten bricks-and-mortar grocers.

Analysts also play down the importance of the Internet in home delivery. It makes payment and delivery process faster and easier than using the telephone or a written messaging system, but it's not a revolutionary improvement.

"There's a reason why the door-to-door milk delivery guys don't do it anymore," says Mr. Inglis. "It's not going to come back because we've gone on-line."

Like the analysts, Mr. Bouchard is concerned whether or not there are long-term profits to be made in on-line groceries. But the Ottawa grocer has seen enough positive response so far to remain committed to the idea as long as he's making money and attracting new customers. "There's no turning back now."

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