In its second-largest acquisition, Amazon buys the company for $970 million.
With a new round of funding, Internet grocer SimonDelivers.com is proving the online grocery concept is not dead; it plans expansion from its Twin Cities base.
Twin Cities-based based Internet grocer SimonDelivers.com believes it’s hit on a formula to let it succeed where other Internet grocers have tanked, and evidently, so does the investment community. In February, while new money for dot-coms was scarcer than parking spaces at the supermarket on Saturday, the Golden Valley, Minn., company closed a new round of financing for a total of $21.3 million.
Rolling the business out slowly, and keeping its web site’s total service and infrastructure costs down to the low six figures, including the initial $60,000 investment in web site development, didn’t hurt it in the capital markets, either. And now, with the extra cash in its pocket, SimonDelivers.com is preparing to expand into a second city. Based on its experience in the Twin Cities, it will likely be similarly mid-sized rather than a larger urban market, though Chief Financial Officer Chuck Karpinske says the company won’t announce the location until the second half.
What’s already clear is that expansion plans will follow the same strategy that’s made the Internet grocer profitable on operations in the Minneapolis area. That model is built in part on one-stage distribution, in which the company cuts out middleman brokers wherever possible to supply its warehouse directly from farmers. Not only does that reduce its cost of goods, but the shorter path from farm to warehouse cuts time out of the process, too. Karpinske says shoppers who buy produce from SimonDelivers.com get fruits and vegetables that are up to a week fresher than what they`d find in a typical supermarket. The customers have noticed: SimonDelivers.com chalks up a higher percentage of its sales from fresh produce than the typical grocery store does, though Karpinske didn`t disclose numbers.
The rest of the strategy is controlled route delivery. “Companies like WebVan and Streamline started with an on-demand model, kind of like pizza delivery, only a bit more complicated,” says Karpinske. “We don’t do on-demand delivery. Those models weren’t able to get enough orders per day and per time to get the delivery costs down.” So instead of offering completely open-ended delivery schedules, SimonDelivers gets web shoppers to commit to a regular day and time of delivery, allowing them to choose from up to four days and two to three time slots per day. Aggregating deliveries in a more compressed time frame, and knowing in advance because customers have chosen a regular time when orders are coming in, lets SimonDelivers keep delivery costs down. The company fulfills orders out of its own 150,000-square-foot warehouse.
“Most consumers go to the grocery store three times a week,” says Karpinske. “There’s their main shopping trip, a fill-in trip and another one for emergencies or if they’re entertaining. We’re after their main shopping trip and their big order. We want it to be a habit for them.” Options such as alternative delivery days, where shoppers not able to take delivery on their regular day can make temporary arrangements to have their order added to another route on another day, offers some flexibility, says Karpinske. “That service is offered on a first-come, first served basis, but we can usually make it work for people,” he adds.
Karpinske says the company has a customer base of about 50,000 in the 7-country Twin Cities metro area. Customer-friendly features such as automatic list generation for returning shoppers that lets them complete online orders in as little as 5 minutes keep shoppers loyal; Karpinske estimates 25,000 to 30,000 of the customer base orders at least twice a month.
“Our tagline is to simplify the lives of busy families. In surveys on grocery shopping, some people have said their best experience at a grocery store is leaving it,” he says. “Some people do like shopping at a store and we’re not going to get that customer. Our goal is for customers to be able to get in and out quickly.”