Tag Archives: Peapod

About 4278 days ago E-Commerce

Food for Thought

Markets The online grocery business just keeps growing. So why can’t anybody make any money at it? Here’s a conundrum: On one hand, the market for online grocery retailing has been thriving. Only last spring research firm Jupiter Media Metrix pegged it at $1 billion, up from $600 million last year and $200 million the year before. More than a million people buy at least some of their food on the Web. On the other hand, this apparently booming market is littered with casualties. Streamline, HomeRuns, and other early entrants are dead. Peapod had to be rescued by deep-pocketed acquirers and still isn’t close to overall profitability. Webvan, which had 46% of the industry’s sales, went under in July — an event that led Jupiter to cut its 2001 projection by about $200 million. So it is with new markets: they don’t exist in the abstract. On the contrary, a market appears only when a company’s business model allows it to create and maintain one. Dissect the key elements of online food and you understand why this particular market is so tenuous. In the grocery business, a 2% to 3% return on sales is considered healthy. Supermarkets earn that thin margin only by rigorously controlling three kinds of costs. They keep cost of goods low by buying in huge volume — “full truckloads of the same product straight from the factory,” as Tim Laseter, vice-president in Booz-Allen & Hamilton’s operations practice, puts it. They control marketing expenses by attracting regular (repeat) customers and by enticing those customers to spend nearly all of their food budget at the store. They minimize labor costs by getting shoppers to assemble their own orders and transport them home. Can the three elements of this business model be adapted to online selling? The answers are yes, maybe, and probably not. Buying power? Yes (with help). Webvan, flush with cash from its initial public offering, expanded rapidly into several metropolitan areas. That would have created large-scale buying volume, except that none of the markets grew as fast as Webvan had hoped. Smaller Peapod, running into trouble, stumbled on a more fruitful approach: it sold itself to giant Royal Ahold, the Netherlands-based owner of Stop & Shop and other U.S. chains. Suddenly, Peapod could take advantage of Royal Ahold’s $30-billion-a-year buying clout. Its cost of goods fell 5% to 7%. Marketing? Maybe. Any online seller must persuade customers to give it a try. But low-margin grocers must persuade shoppers to use the service week in and week out. That’s a tough order: any glitch in Web-site operations or order fulfillment discourages repeat business. Worse, customers may rely on Web ordering for only a portion of their groceries — packaged goods, say. “If a store has only a quarter of my grocery budget, they have to acquire three other customers just like me” to make it up, says Jupiter senior analyst Ken Cassar, who follows the industry. “That’s expensive.” The jury is still out on whether the customer base will stabilize. A survey last spring by Gomez Inc. found that 11% of Internet users had ordered groceries online during the previous three months. About the same percentage of users had once ordered groceries online but not during that three-month period. Labor? Oops. Self-service supermarkets drove neighborhood stores out of business partly by economizing on labor costs. Online stores reverse the trend: they pay employees to assemble and deliver the order yet still hope to offer competitive prices. The secret to this economic sleight of hand was supposed to be technology: state-of-the-art warehouses, wearable scanners, and elaborate software to ensure fast, error-free picking and packing; and sophisticated routing software to minimize drivers’ delivery time. Does it work? Webvan’s high-tech, $30-million-a-pop distribution centers were designed to cut head count 40%, says Booz-Allen’s Laseter, and might actually have done so if they had ever operated at capacity. None came close. Peapod last spring claimed to be turning an operating profit in one market, Chicago. But look at the numbers. Gross margin per order, $47. Cost of assembly and delivery, $31. Allocation of fixed expenses and partial corporate overhead, $13. That leaves a “profit” of $3, except that the calculation still excludes all marketing costs and the remaining overhead. Still, what’s a grocer to do? Raise delivery charges too much — or make customers pick up orders at a store — and you may shrink the market beyond recognition. There are lessons to be drawn from the story so far. The online grocery industry may be booming, but it has been propped up by all the free money that investors once poured into dot-com dreams such as Webvan’s. If the industry lasts — and it may not because of those intractable labor costs — it will be a tough, low-margin business of uncertain size. Why did anybody ever think it would be otherwise? John Case is a contributing editor at Inc. Cream of the Crop One Web grocer is making money: Tesco, the big British chain, which expects online sales this year of about $420 million. The secret? In-store picking and packing, says the company, which saves the cost of building warehouses. A harder-to-copy advantage: location. “Margins for grocers in the U.K. are 6% to 8%, versus 2% in the United States,” says Miles Cook, vice-president and director of Bain & Co.’s supply-chain practice. “At those margins you can afford to offer delivery.” Still, the Tesco model presents problems of its own. A store’s online service may cannibalize its existing customer base and thus produce correspondingly lower margins. Get enough customers, points out analyst Ken Cassar of Jupiter Media Metrix, and suddenly your in-store pickers are fighting with moms or dads for that last package of strawberry Pop-Tarts. “The bigger it gets, the more poorly it works,” he says. 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About 4643 days ago E-Commerce

Upstarts: Internet Convenience Services

Making E-commerce Easier The massive consumer rush to buy stuff online has created some real-world logistical problems — problems these start-ups hope to solve Shopping on the Web is pretty simple. You just point and click — and wait. Sure, the Web gives you endless variety, terrific deals, and 24-7 convenience. But when it comes to actually delivering the goods, E-commerce isn’t quite as fast and painless as the hype would have us believe. For some consumers, ordering on the Web just isn’t worth the hassle. 30% of Internet shoppers have cut back on their online purchasing because they don’t like having to wait for orders to be delivered, reports the Yankee Group. With such a big chunk of the E-commerce market at stake, there’s plenty of incentive to make Internet delivery radically simpler and quicker, and a new crop of Web-based start-ups is aiming to do just that. I want it, and I want it now In the brick-and-mortar world, instant gratification is something we take for granted. You walk into a store, and you walk out with the merchandise you want. So it’s no surprise that consumers want the same immediacy with E-commerce. Call it the Kozmo.com phenomenon, after the well-known Internet service that delivers snack food, videos, books, and CDs within an hour to time-starved — or maybe just lazy — urbanites. Kozmo.com isn’t the only start-up focused on shrinking delivery times. Sameday.com, based in Los Angeles, strives to give any Internet retailer a way to deliver products to customers on — you guessed it — the same day those products were ordered. In 1998 founder, president, and CEO Alex Nesbitt, with backing from Bill Gross’s Idealab, launched what was then called Shipper.com to offer next-day delivery to E-commerce companies. He changed the company’s name and focus after realizing that the demand for same-day delivery was even bigger. To deliver that quick turnaround, Nesbitt has bet on a system of large, centralized warehouses in which the company’s customers maintain inventories of their most popular products. The company launched in Los Angeles last year and now, with 36 warehouses around the country, offers ultrafast delivery in New York, Chicago, San Francisco, Memphis, and the Dallas-Fort Worth area. When retailers link their E-commerce sites to the Sameday.com site, Sameday.com becomes one of several shipping options that buyers can choose from. Sameday.com also has its own Internet mall, where Web shoppers in Los Angeles, for instance, can order baked goods, books, music, toys, gifts, and electronics from the company or its partners. Picking, packing, and shipping charges are in the $6-to-$8 range, a slight premium above traditional second-day shipping. The start-up also charges retailers additional fees for receiving and storing inventory. As Nesbitt sees it, aggregating deliveries from one central warehouse is the key to keeping delivery prices low. But rolling out the service hasn’t been cheap. So far he’s raised $25 million in three rounds of venture capital; he aims to break even sometime in 2002. To do that, he says, Sameday.com will have to gross $200 million from 20 million deliveries a year. On a recent Thursday in Los Angeles, the company made just 200 deliveries. But Nesbitt is confident that demand for his service will grow. “The question for E-commerce companies is, how do they make that instant gratification available at a cost point that consumers find attractive?” he says. “We bring the cost of speed down dramatically.” The online strip mall Whereas Sameday.com is about time, WhyRunOut.com is about convenience. Grocery shopping, dry-cleaning retrieval, film drop-offs, video pickups and returns — WhyRunOut.com aims to unburden people of the mundane tasks that so often eat up a perfectly good Saturday morning. Unlike most Internet grocers such as Webvan or Peapod, however, WhyRunOut.com offers same-day delivery: order by noon at the WhyRunOut.com Web site, and you get your groceries and other goodies in the afternoon or evening. And unlike Sameday.com, WhyRunOut.com manages speedy response without a central warehouse. Instead, the company teams up with local merchants. WhyRunOut.com’s professional “shoppers” fill orders at a number of stores, then deliver goods and services straight to the customers. WhyRunOut.com collects fees from retailers and charges consumers for each delivery. “Our target segment, busy suburban families, would rather trade money for time,” says founder Dan Frahm. What about the cost of paying people to roam the aisles and wait in checkout lines? Frahm admits that his model misses some of the efficiencies of a central warehouse. But, he points out, grocery stores are already fully stocked with merchandise and located close to consumers’ homes. “Yes, there’s some labor there, but it’s half what you have if you set up your own warehouse system,” he says. Frahm started WhyRunOut.com in 1998 with $50,000 in savings, at first doing the shopping and schlepping himself to hone the concept. Lately, the company has been operating in beta-test mode, with 30 employees and fewer than 1,000 customers in its home territory of Orange County, Calif. Currently, Frahm is seeking venture funding to underwrite a marketing campaign. One thing that’s helped, he says, is being able to ride the coattails of some better-known Internet grocers. “Customers know that home delivery is out there, and other Web grocers helped make it an acceptable way of life, which we could never have done on our own.” Look, Ma, No PC These days you don’t even have to have a computer to shop the Internet. At least that’s the aim of Vistify. Founded in Phoenix in April 1999 and now located in San Francisco, the company focuses on the household-replenishment market — or, in plain English, goods such as groceries, personal-care products, and housewares. Instead of ordering on a PC, users can choose products by touching pictures on the screen of an Internet appliance that might sit on their kitchen countertop. (Vistify has developed its own streamlined, Jetsons-esque prototype. The company also plans to offer its service on TV screens, among other media.) Vistify itself won’t sell products or deliver them, says chief marketing officer and cofounder Menekse Gencer; instead, it will offer goods through partnerships with other providers, such as Internet grocers and delivery services. At press time, the company was planning a trial rollout for the end of the year, in Colorado. For those who can’t wait for their Internet appliance, there’s Quixi, launched in New York City in October 1999 by Evan Marwell and Robert Pines. Quixi lets users shop the Web through their cell phone and a live, human intermediary who searches for information and makes purchases online using the subscriber’s stored (and privacy-protected) credit-card number and delivery information. Users pay $19.95 a month, plus some additional transaction charges. Quixi receives 5% to 10% of revenues from each online sale that it processes. Employing human helpers isn’t cheap. But Pines says that Quixi’s back-end technology is designed to minimize the time that live helpers spend on any particular transaction. The company has contracts with outside call centers, limiting its investment in infrastructure, although Quixi might eventually save money by bringing the call centers in-house, Marwell says. With around $28 million in venture capital under its belt, the company began a beta-test phase in June, offering the service free during the summer before its official September launch. In its current form, Quixi is something of an interim solution, admit Pines and Marwell. Eventually, its human-mediated Internet interface may be rendered obsolete by voice-recognition software or ubiquitous personal digital assistants. So Quixi hopes to gain a foothold in those very markets through partnerships with companies that are developing those technologies or by developing such applications itself. At the same time, says Marwell, Quixi’s intended market is people who value convenience more than the dubious prestige of being early adopters. “We almost view ourselves as being a bit of a gatekeeper for customers, not forcing the technology on them before they’re ready,” he says. –E.B. Is there any there there? Onna Iucolano, vice-chairperson of Shop.org, an Internet retailing trade organization, and former chairperson of its research committee, spoke with Emily Barker about the recent expansion in same-day delivery services. Inc.: Are there a lot of same-day delivery start-ups out there? Iucolano: There is a great deal of focus on delivery and fulfillment, and I would say that has come about as a result of activity in the last 18 months. Most Internet retail was very much focused on the front-end activities — the look and feel of the Web site, taking and processing an order — and in reality that was 50% of the battle with respect to what the customer wanted. The stumbling block was on the back end, with respect to being able to actually deliver the finished product to a consumer. Inc.: Then is the potential market the whole of Internet retail? Iucolano: I don’t think it’s that big. It’s sort of like the FedEx model of a few years back. You used to put a package in the mail, and it got there when it got there. Then FedEx in its brilliance convinced us that we had to have it overnight. So it created a market. It’s really interesting how a lot of these products and services create their market just because they exist. Inc.: How’s that? Iucolano: Given the choice of having a book in two days or having it in an hour — well, you probably never thought of having it in an hour, and all of a sudden it’s available to you. Right now the market for same-day delivery is probably relatively small, but it’s one of the fastest-growing areas of opportunity. Internet companies are all taking and processing orders, but they’re all spending a ton of money to do that. It’s too early to tell who the winners might be. Inc.: What do these companies need to succeed? Iucolano: Customer demand. The customers have to be convinced that they really need things the same day, outside of the floral business and the gift business. Video and food make a lot of sense. Anything else that’s going to work will be products that consumers latch onto and say, “I need that right now!” whether they really do or not. Getting and Sending A selection of start-ups that focus on two of the most common headaches for Internet shoppers: packages that arrive when you’re not at home and purchases that need to be returned Company: PaxZone, in Chicago Business concept: Establishes a local network of businesses to which residents can have their E-commerce purchases delivered. Also offers consumers a drop-off service for merchandise returns. Recently expanded to San Francisco. Competitive advantage: Services are free to consumers; PaxZone charges a fee to retailers since its service reduces the extra charges incurred when carriers are required to make repeat trips to residences. Major hurdle: Service may not be easy to scale up. PaxZone must sell its concept not just to consumers but also to retailers, delivery services, and the local businesses that serve as drop points. Company: Brivo Systems Inc., in Arlington, Va. Business concept: Markets software that works in tandem with a “smart box” for home deliveries. When a consumer makes an Internet purchase, the order generates a unique Brivo password that the delivery person uses to open the customer’s wireless-controlled drop-off box. Competitive advantage: Brivo’s software can be adapted to open garage doors and other receptacles too. It also handles “reverse” deliveries from the consumer’s home, such as returns or dry-cleaning pickups. Major hurdle: Since consumers are likely to balk at having to pay subscription fees to receive deliveries, Brivo is developing partnerships with online retailers that will pay for the service. Company: The Return Exchange, in Irvine, Calif. Business concept: Offers Internet retailers online software and services for handling returns. Customers register their returns on the retailer’s Web site. The merchandise goes to a Return Exchange processing center, where it is either shipped back to the retailer for resale or resold through an online auction such as eBay. Competitive advantage: Since the Return Exchange handles all phases of a return, it provides turnkey service for Internet retailers who don’t want to deal with returns themselves. Major hurdle: There’s no lack of competition in this space, from both E-start-ups and brick-and-mortar companies that specialize in handling returns. Please e-mail your comments to editors@inc.com.

About 4643 days ago E-Commerce

Upstarts: Internet Convenience Services

Making E-commerce Easier The massive consumer rush to buy stuff online has created some real-world logistical problems — problems these start-ups hope to solve Shopping on the Web is pretty simple. You just point and click — and wait. Sure, the Web gives you endless variety, terrific deals, and 24-7 convenience. But when it comes to actually delivering the goods, E-commerce isn’t quite as fast and painless as the hype would have us believe. For some consumers, ordering on the Web just isn’t worth the hassle. 30% of Internet shoppers have cut back on their online purchasing because they don’t like having to wait for orders to be delivered, reports the Yankee Group. With such a big chunk of the E-commerce market at stake, there’s plenty of incentive to make Internet delivery radically simpler and quicker, and a new crop of Web-based start-ups is aiming to do just that. I want it, and I want it now In the brick-and-mortar world, instant gratification is something we take for granted. You walk into a store, and you walk out with the merchandise you want. So it’s no surprise that consumers want the same immediacy with E-commerce. Call it the Kozmo.com phenomenon, after the well-known Internet service that delivers snack food, videos, books, and CDs within an hour to time-starved — or maybe just lazy — urbanites. Kozmo.com isn’t the only start-up focused on shrinking delivery times. Sameday.com, based in Los Angeles, strives to give any Internet retailer a way to deliver products to customers on — you guessed it — the same day those products were ordered. In 1998 founder, president, and CEO Alex Nesbitt, with backing from Bill Gross’s Idealab, launched what was then called Shipper.com to offer next-day delivery to E-commerce companies. He changed the company’s name and focus after realizing that the demand for same-day delivery was even bigger. To deliver that quick turnaround, Nesbitt has bet on a system of large, centralized warehouses in which the company’s customers maintain inventories of their most popular products. The company launched in Los Angeles last year and now, with 36 warehouses around the country, offers ultrafast delivery in New York, Chicago, San Francisco, Memphis, and the Dallas-Fort Worth area. When retailers link their E-commerce sites to the Sameday.com site, Sameday.com becomes one of several shipping options that buyers can choose from. Sameday.com also has its own Internet mall, where Web shoppers in Los Angeles, for instance, can order baked goods, books, music, toys, gifts, and electronics from the company or its partners. Picking, packing, and shipping charges are in the $6-to-$8 range, a slight premium above traditional second-day shipping. The start-up also charges retailers additional fees for receiving and storing inventory. As Nesbitt sees it, aggregating deliveries from one central warehouse is the key to keeping delivery prices low. But rolling out the service hasn’t been cheap. So far he’s raised $25 million in three rounds of venture capital; he aims to break even sometime in 2002. To do that, he says, Sameday.com will have to gross $200 million from 20 million deliveries a year. On a recent Thursday in Los Angeles, the company made just 200 deliveries. But Nesbitt is confident that demand for his service will grow. “The question for E-commerce companies is, how do they make that instant gratification available at a cost point that consumers find attractive?” he says. “We bring the cost of speed down dramatically.” The online strip mall Whereas Sameday.com is about time, WhyRunOut.com is about convenience. Grocery shopping, dry-cleaning retrieval, film drop-offs, video pickups and returns — WhyRunOut.com aims to unburden people of the mundane tasks that so often eat up a perfectly good Saturday morning. Unlike most Internet grocers such as Webvan or Peapod, however, WhyRunOut.com offers same-day delivery: order by noon at the WhyRunOut.com Web site, and you get your groceries and other goodies in the afternoon or evening. And unlike Sameday.com, WhyRunOut.com manages speedy response without a central warehouse. Instead, the company teams up with local merchants. WhyRunOut.com’s professional “shoppers” fill orders at a number of stores, then deliver goods and services straight to the customers. WhyRunOut.com collects fees from retailers and charges consumers for each delivery. “Our target segment, busy suburban families, would rather trade money for time,” says founder Dan Frahm. What about the cost of paying people to roam the aisles and wait in checkout lines? Frahm admits that his model misses some of the efficiencies of a central warehouse. But, he points out, grocery stores are already fully stocked with merchandise and located close to consumers’ homes. “Yes, there’s some labor there, but it’s half what you have if you set up your own warehouse system,” he says. Frahm started WhyRunOut.com in 1998 with $50,000 in savings, at first doing the shopping and schlepping himself to hone the concept. Lately, the company has been operating in beta-test mode, with 30 employees and fewer than 1,000 customers in its home territory of Orange County, Calif. Currently, Frahm is seeking venture funding to underwrite a marketing campaign. One thing that’s helped, he says, is being able to ride the coattails of some better-known Internet grocers. “Customers know that home delivery is out there, and other Web grocers helped make it an acceptable way of life, which we could never have done on our own.” Look, Ma, No PC These days you don’t even have to have a computer to shop the Internet. At least that’s the aim of Vistify. Founded in Phoenix in April 1999 and now located in San Francisco, the company focuses on the household-replenishment market — or, in plain English, goods such as groceries, personal-care products, and housewares. Instead of ordering on a PC, users can choose products by touching pictures on the screen of an Internet appliance that might sit on their kitchen countertop. (Vistify has developed its own streamlined, Jetsons-esque prototype. The company also plans to offer its service on TV screens, among other media.) Vistify itself won’t sell products or deliver them, says chief marketing officer and cofounder Menekse Gencer; instead, it will offer goods through partnerships with other providers, such as Internet grocers and delivery services. At press time, the company was planning a trial rollout for the end of the year, in Colorado. For those who can’t wait for their Internet appliance, there’s Quixi, launched in New York City in October 1999 by Evan Marwell and Robert Pines. Quixi lets users shop the Web through their cell phone and a live, human intermediary who searches for information and makes purchases online using the subscriber’s stored (and privacy-protected) credit-card number and delivery information. Users pay $19.95 a month, plus some additional transaction charges. Quixi receives 5% to 10% of revenues from each online sale that it processes. Employing human helpers isn’t cheap. But Pines says that Quixi’s back-end technology is designed to minimize the time that live helpers spend on any particular transaction. The company has contracts with outside call centers, limiting its investment in infrastructure, although Quixi might eventually save money by bringing the call centers in-house, Marwell says. With around $28 million in venture capital under its belt, the company began a beta-test phase in June, offering the service free during the summer before its official September launch. In its current form, Quixi is something of an interim solution, admit Pines and Marwell. Eventually, its human-mediated Internet interface may be rendered obsolete by voice-recognition software or ubiquitous personal digital assistants. So Quixi hopes to gain a foothold in those very markets through partnerships with companies that are developing those technologies or by developing such applications itself. At the same time, says Marwell, Quixi’s intended market is people who value convenience more than the dubious prestige of being early adopters. “We almost view ourselves as being a bit of a gatekeeper for customers, not forcing the technology on them before they’re ready,” he says. –E.B. Is there any there there? Onna Iucolano, vice-chairperson of Shop.org, an Internet retailing trade organization, and former chairperson of its research committee, spoke with Emily Barker about the recent expansion in same-day delivery services. Inc.: Are there a lot of same-day delivery start-ups out there? Iucolano: There is a great deal of focus on delivery and fulfillment, and I would say that has come about as a result of activity in the last 18 months. Most Internet retail was very much focused on the front-end activities — the look and feel of the Web site, taking and processing an order — and in reality that was 50% of the battle with respect to what the customer wanted. The stumbling block was on the back end, with respect to being able to actually deliver the finished product to a consumer. Inc.: Then is the potential market the whole of Internet retail? Iucolano: I don’t think it’s that big. It’s sort of like the FedEx model of a few years back. You used to put a package in the mail, and it got there when it got there. Then FedEx in its brilliance convinced us that we had to have it overnight. So it created a market. It’s really interesting how a lot of these products and services create their market just because they exist. Inc.: How’s that? Iucolano: Given the choice of having a book in two days or having it in an hour — well, you probably never thought of having it in an hour, and all of a sudden it’s available to you. Right now the market for same-day delivery is probably relatively small, but it’s one of the fastest-growing areas of opportunity. Internet companies are all taking and processing orders, but they’re all spending a ton of money to do that. It’s too early to tell who the winners might be. Inc.: What do these companies need to succeed? Iucolano: Customer demand. The customers have to be convinced that they really need things the same day, outside of the floral business and the gift business. Video and food make a lot of sense. Anything else that’s going to work will be products that consumers latch onto and say, “I need that right now!” whether they really do or not. Getting and Sending A selection of start-ups that focus on two of the most common headaches for Internet shoppers: packages that arrive when you’re not at home and purchases that need to be returned Company: PaxZone, in Chicago Business concept: Establishes a local network of businesses to which residents can have their E-commerce purchases delivered. Also offers consumers a drop-off service for merchandise returns. Recently expanded to San Francisco. Competitive advantage: Services are free to consumers; PaxZone charges a fee to retailers since its service reduces the extra charges incurred when carriers are required to make repeat trips to residences. Major hurdle: Service may not be easy to scale up. PaxZone must sell its concept not just to consumers but also to retailers, delivery services, and the local businesses that serve as drop points. Company: Brivo Systems Inc., in Arlington, Va. Business concept: Markets software that works in tandem with a “smart box” for home deliveries. When a consumer makes an Internet purchase, the order generates a unique Brivo password that the delivery person uses to open the customer’s wireless-controlled drop-off box. Competitive advantage: Brivo’s software can be adapted to open garage doors and other receptacles too. It also handles “reverse” deliveries from the consumer’s home, such as returns or dry-cleaning pickups. Major hurdle: Since consumers are likely to balk at having to pay subscription fees to receive deliveries, Brivo is developing partnerships with online retailers that will pay for the service. Company: The Return Exchange, in Irvine, Calif. Business concept: Offers Internet retailers online software and services for handling returns. Customers register their returns on the retailer’s Web site. The merchandise goes to a Return Exchange processing center, where it is either shipped back to the retailer for resale or resold through an online auction such as eBay. Competitive advantage: Since the Return Exchange handles all phases of a return, it provides turnkey service for Internet retailers who don’t want to deal with returns themselves. Major hurdle: There’s no lack of competition in this space, from both E-start-ups and brick-and-mortar companies that specialize in handling returns. Please e-mail your comments to editors@inc.com.

About 4887 days ago E-Commerce

Upstarts: Convenience Cuisine

What’s Cooking On-line? If you’re not sure where your next meal is coming from, you might try the Internet The Web’s next killer app? Think arugula. A host of entrepreneurs are convinced that, just as the on-line arena has changed the way we communicate, shop, and invest, it will change the way we seek sustenance as well. “People have to eat three times a day, but even on the brink of the new millennium, nobody has found a way to get more free time,” remarks David Hodess, the 37-year-old CEO and cofounder of Cooking.com, one of the new players catering to today’s time-starved — and just plain starved — consumers. Along with former Disney Store executive Hodess, refugees from Microsoft and PepsiCo, as well as such high-profile venture capitalists as John Doerr, are staking their money and their good names on new sites that promise to point and click consumers to their next meal. What to have for dinner tonight? The next five nights? That dinner party you’ve scheduled for Saturday? Both Hodess’s Cooking.com, in Santa Monica, Calif., and another on-line start-up, Tavolo, in San Rafael, Calif., offer thousands of gourmet products and wares that can help answer those questions. Each site is financed with $50 million in seed funds and is as much an information resource as a culinary E-tailer. Click on either site’s weekly menu planner for week-at-a-glance menu suggestions, with printer-friendly recipes. In addition, both sites offer various foodie bells and whistles. Tavolo’s site (www.tavolo.com) has features that convert recipes from standard to metric measurements, tailor recipes to the number of people being served, and create a shopping list based on your weekly menu. Cooking.com has an on-line glossary for boning up on the history of cognac or determining the precise definition of a zapotilla. But customizable recipes and on-line glossaries are just the marketing bait. What these sites really want to do is sell you stuff. “Providing a free recipe certainly has value for the consumer,” says Ken Cassar, an electronic-commerce analyst with Jupiter Communications, an Internet consulting company in New York City. “But it’s also a great opportunity to sell mortars and pestles.” As Tavolo founder and CEO Kevin Applebaum is fond of noting, with $55 billion in total sales (both on-line and on terra firma), the market for cooking products and gourmet foods represents a huge category. The leading national retailer of cooking supplies — Williams-Sonoma — has a market share of less than 1%. But Applebaum, who honed his marketing skills at PepsiCo and Procter & Gamble, also knows he’s not alone in spotting cooking sites’ potential. Numerous national retailers, from Macy’s to the aforementioned Williams-Sonoma, are also chasing the ever-expanding on-line opportunity. So is the ubiquitous Martha Stewart, whose Web site, launched in 1997, is in the process of receiving a $25-million tune-up, courtesy of new investor Kleiner Perkins and its general partner, John Doerr. The real challenge for all the gourmet sites, says another Jupiter Communications analyst, Michael May, will be to get the people who purchase gourmet food and wares on-line to go from buying gifts to buying for themselves. The majority of the $200 million in on-line sales of small appliances and gourmet-food items last year occurred during the fourth quarter, for holiday gifts, notes May. Arugula-artichoke-with-roasted-garlic pesto pasta sauce may make for a terrific gift, but it isn’t what people are buying for their own dinner tables — at least not tonight. Cyberconsumption Food and kitchen supplies may not be the biggest on-line shopping category at the moment (books currently hold that honor), but according to Jupiter Communications, they’re where the growth will be between now and 2003. Odds are, Peapod and its ilk will eventually outpace their Amazonian counterparts. Projected on-line consumer spending, by category 1999 2003 % change (in billions) Groceries $0.2 $7.5 3,650% Housewares $0.1 $1.5 1,400% Specialty gifts* $0.1 $1.0 900% Music $0.3 $2.6 766% Apparel $0.8 $6.7 738% Videos $0.2 $1.1 450% Toys $0.3 $1.6 433% Electronics $0.4 $2.1 425% Flowers $0.2 $0.8 300% Books $1.3 $4.9 278% *Gourmet food makes up a significant percentage of this category. Source: Online Consumer Spending Forecast, Jupiter Communications, September 1999. Party of 10? Click Here Sure, much of the on-line cooking sector caters to aspiring chefs. But what if you and the kitchen aren’t on speaking terms? And you happen to like it that way? Take heart. A crop of new sites seek to gratify the pantry-phobic as well. Feel like takeout tonight? San Francisco-based Food.com offers on-line ordering — and, more important, local delivery — from more than 13,000 restaurants nationwide. Feeding your face is merely a matter of entering your zip code and navigating menu offerings. Since restaurants are notoriously low-tech, the company’s server in Seattle translates on-line orders into a fax or a phone call, which is then sent to participating eateries, a service for which Food.com reaps a $400 setup fee, a $50-a-month retainer, and 5% of each order. For those who’d rather dine out, at least two new companies offer on-line reservations. Both foodline.com, in New York City, and OpenTable.com, in San Francisco, are attempting to replace the traditional phone-and-paper-based restaurant-reservation system with a Web-based one. They charge participating restaurants about $200 a month in service and transaction fees (and in OpenTable.com’s case, a $1,000 setup fee). Currently serving a handful of cities, both plan to be nationwide and to ultimately link their service directly into the restaurants’ individual point-of-sale systems. They also hope to personalize the diner’s experience. “Imagine being able to remember that Mr. Jones is allergic to shellfish or sending a promotional E-mail to your top 100 August diners,” rhapsodizes former lawyer Paul Lightfoot, Foodline.com’s 29-year-old CEO. CookExpress.com, launched in January 1999, offers an on-line option that’s between cooking from scratch and dining out: a gourmet, ready-to-cook meal sent to your home by FedEx. Founder Darby Williams, 46 — another Microsoft escapee — calls CookExpress.com a “smarter way to cook.” Three-part meals (for example, roasted salmon with herb-caper sauce, potato-olive salad, and baby arugula), each requiring less than 30 minutes to fix, are delivered to your door (currently just in the Bay Area, where CookExpress.com is based) or by overnight delivery nationwide. Prices range from $8 to $15 per serving, plus a single $4.95 local delivery charge or a shipping cost of $12.95 to $16.95 (based on the number of meals). Yeah, but is the stuff fresh? To mollify those squeamish about the idea of filet mignon that arrived through a delivery service (albeit packed in high-tech gelatin ice), the company has devised a system of labeling each package with color-coded dots that change color if the food hasn’t remained chilled. The packaging also indicates how long the food inside should stay fresh (usually two days). Williams boasts that the company has the potential to be a billion-dollar enterprise within five years. He plans to expand the CookExpress.com same-day service into at least 30 U.S. markets as well as another 6 to 8 markets outside the United States — each worth $25 million in his estimation. He also hopes to add a retail component to his distribution. The logistical complexity of such an undertaking actually appeals to Williams, although, he readily concedes, “had I been in the food business before, I probably never would have done this.” Child in the Wild Julia Child is cooking. So who better to ask about the marriage of virtual and victual reality? And, surprise! She’s all for it, having become Web-friendly and computer-adept herself during her many years of bringing haute cuisine to the masses. Contributing writer Alessandra Bianchi caught up with the culinary grande dame at her home in Cambridge, Mass. Inc.: Do computers and cooking mix? Child: They certainly do. It’s marvelous what computers can do for you when you’re cooking. In fact, A La Carte Communications, the producer of my new television series with Jacques Pepin, has a site, Alacartetv.com, and it has everything on there! You can get TV schedules, cookbooks, even précis of our upcoming shows. Inc.: Do you use a computer in your work? Child: Yes, I have had a computer since they first came out. I use it for writing. I used to do my books in longhand, but word processing is so much easier, for a clear copy and for cleaning up. Recently, I started using the Web to find books — cookbooks from London, for example — and it was a snap. It’s tremendously useful for getting products, too. By clicking on www.fromages.com, you can get real French cheese directly from France, even though you’re a person and not a company! Inc.: But would a serious chef log on to the Web for advice, recipes, and menu planning? Child: Perhaps not now. But eventually, quite possibly. Now it’s fairly primitive, and a good chef would already have a recipe in his or her own library. The cooking information on the Web isn’t always complete or easy to find. For example, if you look up fava beans on a search engine, you don’t get much. But the Web sites are particularly good for beginners. One thing the sites haven’t entirely worked out is how you pay for the research you do. Eventually, it will be wonderful. Inc.: What do you think the development of cooking Web sites says about our culture? Child: I think it shows we’re a progressive culture embracing new ideas. It’s incredible, really. Of course, it helps to know what you’re looking for. But what’s happening on the Web is marvelous for cooking.