Online Grocers Can Bring You Many Things, They Just Can't Deliver A Profit
from the point-click-eat dept
Toss this onto the pile of signs of a bubble: online grocery delivery services are “looking good”. One New York company, FreshDirect, says it’s improved the business model of previous spectacular failures, like Webvan, by focusing its efforts on just one city, and it’s also got some other improvements: it beats supermarket prices on meat and fish, and it’s also getting special fridges put in some apartment buildings to facilitate daytime deliveries. And although the company says it’s expanding and is operating at near-full capacity, it still isn’t profitable on its $240 million in yearly sales. To try and change that, the company is taking a trick out of regular grocery stores’ playbook by pushing prepared foods, which carry a higher margin, and by eschewing some low-margin products. It’s also trying to beef up its web site and make shopping easier — for instance, the site features recipes, and users can order everything that’s needed in them with a single click. In the future, users will be able to enter food allergies they have on the site, and it won’t display products that conflict with them. These are good ideas, and plenty of people think that online grocery shopping and delivery is a good idea — including customers that rave about FreshDirect (and similarly raved about Webvan). Raving fans, however, don’t necessarily mean the business model is sound. Just ask fans of Kozmo’s home delivery service.
History is certainly against the services, and although the NYT says the problem with the likes of Webvan was that “they just didn’t run the company well enough to make it to the golden age,” it’s hard not to be skeptical that FreshDirect, or any of the other companies trying to make it in the space, will succeed. After all, FreshDirect has been around for more than four years, when it first claimed it had learned from the mistakes of its predecessors, a line it repeated again two years ago. While it may not be making the same strategic mistakes, it is repeating the least endearing characteristic of earlier grocery services: the inability to make a profit.