By Glenn Drexhage

BACK IN THE HALCYON DAYS OF THE INTERNET CRAZE (REMEMBER 1999?)

U.S.-based Webvan was an e-com epiphany. Its online grocery delivery plan seemed revolutionary, it raised stunning amounts of money from top venture capital firms and millions more flowed in when it went public. It had a high-profile CEO and it grew like a weed.

But by July 2001, the once-vaunted e-grocer was forced to call it quits, a victim of the violent market correction and an ambitious strategy that never fully gelled.

Some took the demise of Webvan and other similar firms as a pertinent e-commerce lesson: forget about selling groceries online. But a handful of Canadian companies aren’t worried about death in the Internet aisles. They’re convinced they can deliver profits along with the goods. And here’s the special of the day: they all have different business plans.

Which firms will endure remains to be seen. According to Joe Greene, vice-president of telecom and Internet research at IDC Canada, only half a per cent of Canadians (about 150,000 people) bought groceries online in the last quarter. “I think over time [e-groceries] can become viable, but at this point it’s a bit of a niche market.”

The logistics provider

Niche or not, the field remains full of contenders. The best known Canadian company in this space is Toronto-based Grocery Gateway, which began operating in 1998 and maintains a whopping 280,000 square-foot building in northern Toronto. An array of technology, including wireless scanners and bar code readers, allows trained pickers to fill orders that are then delivered during daily, customer-selected windows.

Grocery Gateway serves the Greater Toronto area and recently expanded into Hamilton and Kitchener, Ont. It also provides a pick-up service for vacationers on their way to cottage country. Al Sellery, president and CEO, estimates Grocery Gateway has more than 60,000 customers, who pay an $8 delivery fee on minimum $60 orders that can be changed until the day before delivery. Customers don’t pay until the groceries arrive and have the choice of using credit cards, debit cards or personal cheques.

About half of the company’s massive facility is dedicated to carrying out logistics contracts for other parties. Despite his firm’s name, Sellery doesn’t consider Grocery Gateway to be solely an e-grocer. “The reality is that we are a last-mile logistics provider,” he said.

This strategy was bolstered with the July acquisition of Direct Home Delivery, which provides third-party delivery services in various Canadian cities (its best-known client is Staples Business Depot). With this recent addition, Sellery plans to provide a national distribution service to other companies targetting home and small-office delivery.

He also expects that this third-party role will be outside the grocery environment. At press time, Grocery Gateway was providing logistics services for SERCA Foodservice and is working on other, as yet unannounced, deals.

Onlookers are impressed. In a recent report, Jordan Kendall, an analyst with Forrester Research, wrote that the firm “maintains a laser focus on providing cost-effective, scheduled delivery to the home.”

But despite all this good news, Grocery Gateway is only expected to break even in the next 12 to 18 months. Even so, the firm has raised about $80 million in equity financing.

The ASP

In an entirely different approach to the industry, Montreal based Peachtree Network has positioned itself as an application service provider ( ASP) that helps smaller grocers get online. The company charges start-up, maintenance and transaction fees for its service, which is supported through proprietary technology. Bigger chains can buy a corporate licence and pay fees for stores that use Peachtree’s application.

The company has some major clients, including IGA Quebec, ShopRite in the U.S. and Intermarche in France. It may opt to service other retail segments; Peachtree has a letter of intent with Bell Quebec that would allow it to provide e-commerce services to Bell’s retail clients.

But Peachtree has also endured trying times. In August, it laid off 12 of its 31 employees and stated it was “continuing discussions” to find a strategic partner to buy some or all of the company, or provide long-term capital. CEO Louis Brouillet resigned just a few months after being appointed.

However, COO Cynthia Semenic maintained that Brouillet left the company because he lives in California and the commute to Montreal was proving too much. She remains confident Peachtree will secure funding.

Then there’s the share price. In March 2000, Peachtree listed on the Canadian Venture Exchange for $1 a share. By August the share price had plummeted to 13 cents.

However, Semenic said failing stock value will not stop the company. “I know what the stock price is on a daily basis,” Semenic said. “Do I get fixated on it? No. I’ve got other things that, if I do them right, will affect the stock price positively.”

She has a tough road ahead. Semenic expects Peachtree will be profitable in 18 months; recent quarterly results indicated sales of $146,788, and an operating loss of $414,761.

The online mall

Garfield Coore believes in his company’s potential. He’s the founder and CEO of TeleGrocer, an Ottawa-based e-grocer with big aspirations.The company is a division of Net Transactional Services Inc. (NTSI), a privately-held e-commerce firm.

TeleGrocer doesn’t warehouse its own products but allies with supermarket chains that buy directly from manufacturers. TeleGrocer’s orders are sent to the fulfillment supermarket and assembled by its personal shoppers. The products are then delivered to the customer’s door, and payment is made by cash or cheque.TeleGrocer’s fees range from $9.95 to $11.95, plus percentages based on membership arrangements.

According to the company, its approach results in prices that are 15 to 30 per cent lower than those of e-grocers that stock their own inventories. Coore claimed TeleGrocer maintains an impressive 40 per cent operating margin, because it shares processing and delivery risks rather than bearing them alone. He added the company has been profitable on an operating basis since it opened in 1996.

With only eight employees, TeleGrocer contracts out its shopping and delivery services. The company also has franchising plans in place to help it expand across the country.

Coore is keen to explore other e-commerce opportunities. NTSI has technology for an online mall concept in which TeleGrocer is the anchor tenant. As users are drawn to this mall, other branded retailers may want to come onboard and use TeleGrocer’s delivery capabilities.

However, in contrast to some of his rivals, Coore is adamant that TeleGrocer will remain solely an e-grocer to avoid diluting its brand. “It’s a simple business thing-you are whatever the consumer thinks you are.”

Coore also takes issue with the seemingly tiny e-grocer projections put forward by analysts. “Whether it’s one per cent or two per cent [of the overall market] these are big numbers we’re talking about. So the opportunity exists,” he said, adding there are thousands of grocery stores across Canada but only a handful of e-grocers.

The stand-alone

Out west, Quick.com serves B.C.’s Lower Mainland area. The company, which opened its doors two years ago, rents a 32,000 square-foot facility in Richmond and lists more than 5,500 available items, from regular fare to organic produce.These are delivered via eight trucks, which Quick.com leases. Order sizes must add up to a minimum of $50, with varying fees and discounts, and deliveries occur during 90-minute windows. The company’s technology includes a warehouse management system and special infrared devices worn on the wrists of pickers to help with product packing.

According to president and COO Gerry Kenyon, Quick has about 3,000 customers and is growing daily. He’s convinced that Quick offers an invaluable service: “We are a full-service, one-stop grocery experience that enhances your life.”

And he’s betting that this experience will lead to big business. “We’re looking to prove the Vancouver model, and then we’re going to expand to 40 locations across North America by 2004.”

Admirable intentions, but could they be overly ambitious, considering the collapse of Webvan after a too-quick expansion to the U.S.? Kenyon doesn’t think so-with 32 years of experience in the retail food industry, he stressed that his equally-experienced management team has kept a tight rein on costs and said the company is on target to achieve profits by early next year.

He also disputed analysts who predict that future success in the e-grocer space will depend on partnerships with traditional grocers. While he acknowledged a big partner can bring advantages, Kenyon added that Quick prefers a stand-alone model, in which it buys directly from suppliers. “Our buying power is going to be substantial as we grow for the next three years.”

Webgrocery
Grocery Gateway - http://www.grocerygateway.com
Forrester Research - http://www.forrester.com
IDC Canada - http://www.idc.ca
Loblaw Companies - http://www.loblaw.com
Peachtree Network - http://www.peachtree.ca
Overwaitea - http://www.overwaitea.ca
Quick.com - http://www.quick.com
Sobeys - http://www.sobeys.ca
TeleGrocer - http://www.telegrocer.com
Webvan’s Asset Inventory Web site - http://www.webvan.com