Published on: April 15, 2010Now available on iTunes…
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Hi, I’m Kevin Coupe and this is MNB Radio, available on iTunes and brought to you this week by Webstop, experts in the art of retail website design.
There was a story the other day from Reuters saying that FreshDirect, the pure-play e-grocer based in New York, was looking for $100 million in funding as it expands further into suburban New York and makes its first foray into Connecticut. I think that’s terrific, and I hope they get their funding and build a prosperous business.
What bothered me about the story was the implication that somehow FreshDirect was positioned to rescue the troubled e-grocery business, in which few people have been able to make a go of it since companies like Webvan collapsed a decade ago. Now, to be sure, there is nothing in the story to suggest that the folks at FreshDirect were promulgating this point of view; I suspect that the “here we come to save the day” approach is one that FreshDirect would try to avoid, since its chairman, Richard Braddock, also was at Priceline when it made its ill-conceived attempt to get into the supermarket business with a “name your own price” proposition that some retailers thought actually was a turnkey internet strategy. Not so much.
But there are assertions made in the story, some by the reporter and some by consultants, that suggest that the online grocery business has been dormant for the last 10 years. Nothing could be further from the truth.
Now, let’s be clear. I actually have a dog in this hunt. Three of them, in fact. Two of my longtime MNB sponsors - MyWebGrocer and Webstop - are in the online grocery business. And my friend Tom Furphy helped to create Amazon.com’s online grocery business.
But that’s also sort of the point. MyWebGrocer, for example, has been in business since the Webvan days, but it didn’t collapse when a lot of other businesses did, and has been on a steady growth trend as long as I’ve known them, creating innovative online solutions for retailers of all sizes. Webstop also is a longtime player in the category, and continues to expand its operations. And this does not even take into account the fact that Ahold-owned Peapod continues to be an important part of that company’s business model.
The real point is that internet grocery shopping isn’t dead. Far from it. Sure, we’ve come a long way from the halcyon days when people were predicting that online food shopping would be 20 or 30 percent of the entire business. That probably was never a reasonable expectation, and I plead guilty to having greater expectations for e-grocery than the business model could possibly bear. I was hardly alone.
I’ve talked to retailers over the years who have waxed rhapsodic about their online businesses. The general sense I get is that most prefer a pickup model to a delivery service - it makes money faster - but that some believe that you have to offer both to shoppers who want options. And I’ve talked to retailers who have told me that a) in some cases their stores offering online shopping can generate as much as 15 percent of total store sales, and b) consumers who use a store’s online services tend to spend as much as 20 percent more when shopping.
Is the business model for everyone? Of course not. Is everyone going to see the same kinds of numbers? Not likely. But online grocery shopping continues to be a slowly evolving and exciting category. It is a place where companies can try to innovate, to see how far they can push the envelope. Take, for example, Amazon’s Subscribe-and-Save service, which creates persistent and sustainable loyalty in a way that almost no other retailer does.
For me, however, the primary reason that I believe companies investing in online grocery shopping models are making the right move has to do with generational issues - the fact that the next generation of primary grocery shoppers will be a group of people raised to think of online not just as another option, but as a primary method of obtaining products and information. When they think about books, they think of Amazon, not Barnes & Noble or Borders. When they think about clothes, they often go online first. When they want to watch a TV show, they turn to their computers so they can watch it on their own timetable, not some network’s. And they think of the internet as an organic part of their daily lives...
(Actually, that’s inaccurate. They don’t think of the internet as an organic part of their daily lives, because they don’t even think about it. It just is an organic part of their lives.)
Y’think this isn’t going to carry over to food shopping? Y’think that retailers that have invested in this business model won;t have an advantage going forward?
As Puck says in “A Midsummer Night’s Dream”...”Ah what fools these mortals be!”
For MNB Radio, I’m Kevin Coupe.
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