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Will Online Food Companies Replace Actual Grocery Stores?
Have you ordered any food online lately? Do you dare?
It has now been almost 15 years since Webvan—if not the world's first online food order-and-delivery service, then certainly its most hyped—imploded, earning dot-com infamy alongside Pets.com and DrKoop.com. The service had raised 6 million in investments and another 5 million in an IPO, and then it was all gone in the blink of an eye.
Of course, Webvan was far from the only one to try its hand at similar services. HomeGrocer (remember it?) also raised a lot of money, went public, grew fast, and, at its peak, topped .5 million in sales a day. But it also overcommitted in building warehouses and was bought out by Webvan. Whole Foods Market had a massive e-commerce operation from 1998 to 2000, only to abandon ship and sell off the assets to Gaiam. Peapod was founded in 1989 and is partnered with bricks-and-mortar chains Giant and Stop&Shop to provide home food delivery, and is still out there today (though it may have been surpassed on the coolness scale by Instacart).
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But by and large, traditional food companies seem to have concluded that somehow their business is unlike music, clothing, and travel and is therefore best handled the old-fashioned way: by customers hopping into the minivan, driving a few miles to the A&P or Acme, and picking out their goods in person.So20th century.
Yet something is changing—technology? consumer attitudes?—and a new generation of food e-commerce has arisen. Take, for example, FreshDirect, which is already part of everyday life in New York City and parts of the surrounding area. Then there's Amazon, of course, which has perfected the online sales of nearly every other category and has expanded into the grocery space in Seattle, Los Angeles, and San Diego with its AmazonFresh service–itself built on the beat-down remnants of Webvan and HomeGrocer.
Even more interesting is Good Eggs, a San Francisco-based operation that has already attracted millions of dollars in private equity from investors. Good Eggs has a gorgeous website that showcases locally sourced food with photography, recommendations, and smart navigation, all of which may help overcome consumers' hesitation to let an anonymous third party pick out their plums and pluots.
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Door to Door Organics is another service with promise. Started as a sort of online CSA that allowed consumers to select a weekly produce basket, make substitutions, and have it delivered to their homes, Door to Door has now expanded into other grocery categories.
But potentially the most disruptive of all new food e-commerce companies is Thrive Market, which launched last November and is already emerging as a powerhouse. Thrive is essentially a cross between Costco's membership model and Whole Foods' curated product set. It charges for a 1-year membership (portions of which are often discounted or waived as promotions) and offers a growing inventory of natural and organic groceries (currently more than 3,000 items, although still nothing perishable) at 30 to 50% below traditional retail prices. What's more, for every membership Thrive sells, it gives one away to individuals living in communities in need.
Thrive's headquarters in a smallish warehouse building in Culver City, California, pulsates with energy. In one room, a group of bright-eyed employees works to cultivate the network of "influencers" like mommy bloggers and nutritionists who were responsible for a great deal of the company's early success. In another room, about the size of a corporate conference room, some two dozen customer service reps are shoehorned in, helping customers with orders and solving logistical problems. There is a well-stocked kitchen (does your office have saffron threads?) where food editor Merce Muse concocts recipes made with Thrive's offerings, adjacent to a space where these dishes and other products are photographed and posted online within hours.
Indeed, Thrive Market is growing so fast that it recently opened a larger fulfillment facility in Commerce, California, so that it didn't have to use its Culver City building for storing products and packing orders. And only weeks after cutting tape in Commerce, Thrive is looking to double its capacity yet again with a new warehouse in the Midwest.
Other natural-foods e-commerce entrepreneurs like Relay Foods, Farmigo, and Abe's Market are trying to get in on the action, too. Many have limited delivery footprints, dictated by the demand for local foods and the presence (or absence) of regional warehouses.
It's a sure bet that one of these online retailers will emerge as the big winner, and that there will be some consolidationthe presence of so much investment capital virtually guarantees it. But with 0 billion or more spent on groceries each year in the United States, broadband access growing, and online ordering now an accepted part of life in nearly every consumer category, it also seems certain that this time around, food e-commerce is here to stay.
Video: Michael Ruhlman: "Grocery: The Buying and Selling of Food in America" | Talks at Google
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