Think small, say online grocers

One of the keys to success in the online grocery market is to start out thinking small, online grocery delivery companies say. “Success in this market is all about the pizza delivery model,” says Dan Frahm, CEO of WhyRunOut.com, a grocery delivery service in Southern California. “Relatively small distribution centers that are close to the customer make sense.”

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WhyRunOut fulfills customers’ orders by picking items from the shelves of Stater Bros. supermarkets, Southern California’s fourth largest supermarket chain. It has no investments in warehouses or inventory and it collects a commission on sales from Stater Bros. Other grocery delivery services that have faltered have made huge investments in warehouses and distribution centers.

Similarly, HomeRuns.com, a Boston-based online grocer that is expanding into the Washington, DC, market, says it is headed toward profitability because it started small. “Do it so it proves itself each step of the way,” says Alison Berglund, vice president of marketing and business development at HomeRuns.com Inc., based in Sommerville, Mass., a suburb of Boston. HomeRuns.com started as an affiliate of Maine-based Hannaford Bros., supermarkets. It operates a distribution center from which it fulfills customers’ orders.

< Companies such as WhyRunOut and HomeRuns will succeed if they continue to focus on densely populated areas, observers say. “If anybody has a chance of success, it’s someone like WhyRunOut,” says Roger McDonell, president of Package Quest, which is developing a packaging tracking system. “You have to have the density.” McDonell was head of same-day delivery company DeliverEtoday which closed after the holidays.