MyWebGrocer.com, an Internet services company that helps grocers sell on the web, started out just as the boom of the Internet began turning to bust, in late 1999. “We’re a survivor,” says president Michael Spindler. “We’ve hung on through a couple of tough years for online grocery, but now we’re seeing growth.”
Like many survivors of the dot-com bust, MyWebGrocer is picking up the pieces of fallen competitors. In November, MyWebGrocer bought some of the assets of NeXpansion. With that sale, NeXpansion, formerly known as NetGrocer.com, became the latest casualty of the dot-com implosion. NeXpansion offered online non-perishable groceries through NetGrocer.com, fulfilling orders from 16,000 SKUs in a 30,000-square-foot warehouse in North Brunswick, N.J. It also offered retailers its Endless Aisle service, a kiosk and web-based assortment of exotic products that supermarkets don’t commonly stock. It fulfilled those orders out of the warehouse as well.
MyWebGrocer bought the NetGrocer.com and Endless Aisle brands, but not the warehouse. Analysts say MyWebGrocer is following a strategy opposite of that of NetGrocer.com, Webvan Group Inc., and other once-high-flying startups that toppled after over-investing in distribution infrastructure, including dedicated warehouses, and equipment without first securing a customer base. “It can cost $10 million to $12 million to build a grocery warehouse, and the break-even point could be five to 10 years,” says Mark Hugh Sam, analyst who follows the grocery industry for investment research firm Morningstar Inc.
The more cautious approach
MyWebGrocer, Hugh Sam adds, is taking the more cautious approach of fulfilling online orders from stores, avoiding the cost in infrastructure and personnel of maintaining a warehouse. With that approach, it is following the trail blazed by the leading retail chains that offer-and are now succeeding with-online shopping, including Safeway Inc., Albertsons Inc., Royal Ahold’s Peapod and the U.K.’s Tesco plc who use their stores to fill online orders. The big difference is that MyWebGrocer doesn’t operate any stores of it own.
Rather, MyWebGrocer is working with retail partners to leverage infrastructure and cautiously add staff. It has devised a formula for limiting the costs of operating an online grocery business while offering its retail partners, at a cost of about $4,500 in startup and hardware costs plus a few dollars per order, a mostly automated, web-based system for channeling online orders.
MyWebGrocer is two parts a provider of services to grocers who want to offer online shopping to their customers and one part b2c online grocery sales. It provides e-commerce systems to grocery retailers who want to sell online through their own branded web operation and fulfill orders from their own stores. It also provides Endless Aisle specialty products as a separate online service to retailers who want to let their customers order goods not carried in their stores. And it operates NetGrocer.com, a stand-alone web grocery service. With no stores or warehouse of its own, it fulfills NetGrocer orders from a ShopRite store in New Jersey and Endless Aisle orders from an Amelia’s store in Indiana.
To Spindler, who spent 25 years in the consumer products industry, MyWebGrocer’s strategy is all about offering grocers different means of serving customers in a market where competition is forcing them to differentiate themselves from mega-chains. “If you can’t compete against Wal-Mart on price, you better figure out things you can do that Wal-Mart has a hard time doing, for example, customer service and convenience that you can provide to your local customers,” Spindler says.
NeXpansion operated NetGrocer.com as a shopping service that shipped online orders of non-perishable goods anywhere through FedEx. To serve grocers who wanted to offer goods not stocked in their stores, NeXpansion offered its Endless Aisle shopping service as a link to NetGrocer. It promoted the idea of offering Endless Aisle shopping through in-store kiosks, where shoppers could log onto the Endless Aisle web site. It also provided retailers the option of offering Endless Aisle from their web sites, either alone or in combination with the store kiosks.
Hard to generate profits
Although it was still signing on retailers last summer, NeXpansion buckled under its operating costs before selling out to MyWebGrocer in November. Efforts to reach former NeXpansion executives were unsuccessful, but Spindler notes that the company faced mounting costs while failing to lure enough shoppers to its kiosks.
“The kiosks weren’t very popular, but they cost a lot of money,” he says. In an effort to recoup the costs of the kiosks, which Spindler says can run $30,000 to install, NeXpansion tried offering multiple services in addition to Endless Aisle shopping, such as information on pharmaceutical products. “But it was too hard to make them a profit maker and 90% of Endless Aisle sales were generated on retailers’ web sites,” Spindler says.
Although MyWebGrocer retains the rights to use Endless Aisle kiosks, it has no plans to re-deploy them. Instead, it’s focusing on offering Endless Aisle services on retailers’ web sites while completely reconfiguring the way its orders are fulfilled.
MyWebGrocer has replaced NeXpansion’s fulfillment strategy with a system that leverages existing store inventory. Because MyWebGrocer doesn’t operate its own stores, it searched for new fulfillment partners from the ranks of its customer base. “We looked for folks who could handle high volume and were excited about the opportunity,” Spindler says. It settled on two fulfillment partners-both retailers with strong brick-and-mortar businesses.
MyWebGrocer chose an 80,0000-square-foot ShopRite supermarket in Oakland, N.J., to fulfill NetGrocer orders, and northern Indiana-based Amelia’s, a specialty foods market unit of G.A. Foods, to fulfill Endless Aisle orders. Endless Aisle, which dissolved as a service after NeXpansion went out of business, is starting to reappear this month with a handful of retail clients, including Harris Teeter and Winn Dixie.
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