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This article by Caroline Calogero was published in U.S. 1 Newspaper on November 10, 1999. All rights reserved.
Food Fights: The ‘Net Is the New Battleground
For many busy professionals, grocery shopping is up
there with cleaning toilets and scraping gum from shoes. Can’t live
with it, love to live without it. In the old days, before the World
Wide Web encircled us, the only choice involved was picking a store.
The arrival of E-commerce has broadened the options. There’s the market
down the road and the dot com market just a few key strokes away.
You might jump in the car, race down to the store, zoom through the
aisles filling the cart with what you hope is enough groceries, kids
in tow, fretting as you line up to check out. Or you can fire up the
computer, click to a mega-site retailer, wade through the software,
assemble your list, fork over the delivery fees, and then hit the
supermarket to pick up the must haves — milk, bread, and veggies
— that some online grocers don’t carry.
Although the solution doesn’t seem so clear any more, the Internet
— and the potential for time saving it represents — remains
a tantalizing option. What’s at stake is a tempting prize. Grocery
store sales rang up at $449 billion in 1998. Online spending for last
year was just a small fraction of that amount, $100 million, but some
predict $4.6 billion will be spent in cyber space grocery stores in
2002. Among the cyber groceries are Streamline.com, Peapod.com,
and Homegrocer.com. In San Francisco, Louis Borders (founder
of Borders Books and Music) took Webvan.com public last week
(its symbol: WBVN).
Those with long memories may note that sending in a shopping order
to a market and having it delivered are ideas as old as retailing
itself. They might even argue that these are services that city dwellers
have enjoyed all along.
But different shopping strokes suit different folks. Two area firms,
NetGrocer and Risoldi’s Thriftway, have set up Internet-accessible
markets that represent contrasting stylistic approaches to this age-old
problem of supplying the troops. On a national scale NetGrocer’s shopping
service is available now. At the community level, Risoldi’s service
has had some growing pains and is temporarily off line, but is expected
to be available again soon. Whether the power of the Internet can
overcome the ordinary shopper’s ingrained urge to squeeze the melons
— that remains to be seen.
NetGrocer is an Internet-based storefront (http://www.NetGrocer.com
with a North Brunswick-based warehouse. It sells non-perishable groceries,
health and beauty supplies, and gift items. The site offers 10,000
products including five kinds of pectin for canning fruits, seven
types of balsamic vinegar, and 750 products acceptable on a diabetic
Although you can order squab or a package of English muffins, as a
rule, says NetGrocer CEO Fred Horowitz, "we don’t do perishables.
Supermarkets do a great job in fruits and vegetables and that’s the
fun stuff to shop for. We take care of the boring stuff. We always
say, `We squeeze the Charmin so you can squeeze the melons.’"
The site’s software allows some interesting shopper’s calisthenics.
Consumers may select edibles based on 12 criteria including fat, salt,
cholesterol and calorie levels. Items can also be sorted by cost per
unit measure. The site is wired to allow food donations to be sent
directly to the charity, Second Harvest, with a click of the mouse.
In addition to the usual saved list and buying history features, the
site offers dry goods such as baby toys and clothes. For Thanksgiving,
NetGrocer offers fresh meat packages starting with an all-natural
low-fat turkey for $49.95, shipped in dry ice. An inhouse team did
the site design at a cost of $8 million, and it went live over the
Internet in the summer of 1997.
"Our vision of the company was always to reduce duration and frequency
of people’s trips to the supermarket and drugstore," says Horowitz,
who grew up on Manhattan’s Upper East Side. His father died when he
was young, and his grandfather was in the import/export business.
After majoring in semiotics (the construction of languages) at Brown,
Class of 1986, he was president of USA Detergents Inc., a manufacturer
of laundry and household cleaning products.
Horowitz labels NetGrocer a category killer in non-perishables, health
and beauty products, and general merchandise. The original investors
saw that "the Internet could really be a phenomenal alternative
channel for distribution" of non-perishables. In addition to the
traditional supermarket staples such as paper goods, diapers and detergent,
items including compact disks, small appliances and children’s computer
software are also available.
Horowitz likens the function of the site to shopping at a warehouse
club. These are "pantry re-supply items. You don’t need them right
away. You’re stocking up." Using NetGrocer doesn’t eliminate the
need to ever step into a supermarket but for a well organized consumer
it may shorten some trips.
NetGrocer delivers via Federal Express. The company’s 130,000-square
foot warehouse and distribution center in North Brunswick was chosen
with its relative proximity to a Fed Ex shipping hub in Newark in
mind. NetGrocer advises customers that delivery will take from one
to four business days. Horowitz claims most customers in the Northeast
receive their orders by the second day. The company wants to beat
expectations and uses four days as a "worst case scenario."
Horowitz admits North Brunswick is not the ideal starting point for
orders shipped west of the Mississippi and plans to open a West Coast
distribution center in the next year.
Delivery charges start at $5.99 and vary with order value and shipping
distance. To ship $250 worth of paper towels, shampoo, fabric softener,
imported pasta, and a lighted makeup mirror to Bangor, Maine, or Savannah,
Georgia, costs just under $20. This delivery price is very competitive
with Peapod.com. (A pioneer in this field, Peapod started in Chicago
and now delivers fresh items to a handful of cities nationwide, but
it also has a division, similar to NetGrocer, that sells nonperishables.)
The organization of NetGrocer’s virtual site is vastly superior to
the physical layout of a supermarket, asserts Horowitz. Customers
don’t have to go down every aisle to get what’s needed. Virtual shelf
space is unlimited, unlike shelving in a traditional store, so the
same product may appear in several aisles. Horowitz gives the example
of a tomato sauce that happens to be low in sugar. It will appear
with the other tomato sauces and appear again listed with the foods
aimed at diabetics. "It’s easy to use. It really does save time."
Distinguishing NetGrocer from other websites, Horowitz says, is that
"we really view ourselves as a retailer." NetGrocer provides
inhouse 24-hour seven-day online customer support.
NetGrocer’s customers include parents of college students sending
care packages, busy families, and retirees ordering heavy items for
delivery to their Florida wintering grounds. Horowitz points out that
web traffic offers different demographics than that of a physical
supermarket. "We have a much higher percentage of men shopping
than a traditional supermarket would."
Horowitz would not disclose the number of orders filled on a weekly
or daily basis, offering instead that NetGrocer has served 200,000
customers to date and that half of its orders are currently coming
from new customers.
But even for electronic stores, the issue of profitability must surface
eventually. "NetGrocer generates positive cash flow on every order
that it sells. We’re still not profitable for the same reason that
most Internet companies have chosen not to be profitable. We’re reinvesting
and investing a lot of money in marketing and advertising in order
to create our brands and in order to teach people a new way of shopping,"
says Horowitz. These marketing activities are occurring "primarily
online." NetGrocer has not been throwing money at expensive media
such as the network TV commercials recently aired for other websites.
But there are indications that NetGrocer’s finances may be moving
in the right direction. "This year we have a positive gross margin
when these marketing and advertising expenses are subtracted out.
A year ago the company had a negative 35 percent gross margin."
The company’s goal is to be profitable in the next two years. Founding
employees have stock, and among the investors are Cendant Corporation,
angel investor Uri Evan, and venture capitalist Fred Adler.
"Retailing has always been about trying to gather the most of
a customer’s basket," says Horowitz, explaining that this philosophy
is similar to that of all the other grocery stores selling food, toasters
and laundry baskets. He points out that the average customer goes
to the supermarket twice a week and spends 47 minutes per visit —
not including travel time. Shopping for food online can save time.
"That’s our whole goal: to let the customer use the express lane
when they go to the supermarket."
Risoldi’s Thriftway Supermarket on Quakerbridge Road
in Mercerville is trying to be the David to NetGrocer’s Goliath. The
single store is one of the 65 independently-owned Thriftway franchises
that share ad production and private label brands. Three generations
of Risoldis are working here: Sam Risoldi Sr. founded the store almost
50 years ago, Sam Risoldi Jr. owns and manages the store, and his
son, 17-year-old Sam III, helps out.
Last year in August, Risoldi’s website http://www.risoldi.com
began offering on-line shopping to customers with the entire contents
of the supermarket up for sale.
The Risoldi approach: Orders are individually picked off the shelves,
run through the register, bagged, and labeled. Meat and produce requests
are spun off to the respective departments. With this system you could
wind up with a better rump roast than you might have chosen for yourself,
because Risoldi requires these items be selected by the department
manager. Perishables sit in the cooler overnight and orders are then
assembled for delivery.
"We want the customer satisfied 100 percent," says Risoldi.
He emphasizes the high quality of the perishables available for online
ordering as a way to distinguish himself from competitors. "Today’s
sale is not good enough. It’s tomorrow’s sale that we’re after as
Risoldi might be onto something. According to Progressive Grocer,
the Bible of the food retailers, slightly more than half of every
$100 spent in grocery stores goes towards perishables including deli
products, bakery goods, meats, seafood, ice cream and frozen food,
Risoldi admits to using the Internet to take aim at a customer base
that generally would never even set foot in his store. He cites the
dual income couples and well-to-do families of Princeton, Pennington
and West Windsor as his sought after market. "We are trying to
increase sales outside of our normal trading zone."
Though at its peak the store was currently filling only about a dozen
Internet orders per week, the average size order of $150 was sharply
higher than the average of $22 per walk-in customer. Monthly sales
volume doubled between March and August, from $3,000 to $7,000.
Online prices are updated weekly to reflect the sales advertised in
the weekly circulars. Orders are to be delivered the day after placement,
with a two-hour delivery time window. The original delivery charge
of $6.95 will be raised to $9.95 shortly, but all orders placed via
the Internet will get a five percent discount.
Risoldi’s site uses software provided by Supermarkets
To Go (SMTG) of Ocean, an Internet software development company located
in Ocean, New Jersey. Risoldi explains he set up his website after
an unscheduled visit from Harry Grazi, proprietor of SMTG and purveyor
of the Java-based software. There was no computer on Risoldi’s cluttered
desk in his backroom office just behind the refrigerated cases. But
he knew instantly that going online was a good idea. He thought that
his status as an independent would make it easier to push forward
with the concept than if he had a chain.
Risoldi’s instincts to go online are echoed within the industry. Wegman’s,
the superstore at Nassau Park, uses its website to back-up its weekly
E-mail newsletters, the cyber-version of an advertising circular,
but has no delivery service. McCaffrey’s stores in the Princeton and
Southfield shopping centers offer a fax-based shopping service. You
fax the list and they deliver it for $10 or $15.
McCaffrey’s Yardley store does use the website, http://www.mccaffreysmarkets.com,
managed by an outside firm, A to Z Grocery. This firm "shops"
the order from the store and delivers it for a $10 flat free. (As
the cyber business builds, says vice president Mark Eckhouse, McCaffrey’s
will need to build a warehouse to fulfill orders more efficiently).
"Interestingly more independents than chains plan to place emphasis
on online shopping as a competitive point of difference to mainstream
grocers, many of which have websites, but are using them as little
more than promotional novelties," states the most recent annual
report of Progressive Grocer.
Risoldi’s software literally lists every product in the store. Sometimes
difficult-to-decipher abbreviations stand in for long product names.
The item described as four ounces of Vicks Formu Regular Spr Dcg An
for $3.99 remains a mystery to me. Oscar Meyer Regular Lunch Com at
$2.69 for 11.9 ounces appears to be an offering from the popular Lunchables
line of refrigerated meals. But exactly which Lunchable is this? The
right flavor makes all the difference to the typical eight-year-old
The software also demonstrated a few other quirks. Flashing ads listed
the weekly specials in calm blue type with sale prices replete with
unnecessary zeros. Two and a half dollars was written as $0002.50.
Regular prices in the same ads were done in arresting red type using
The site proved difficult to exit without making a purchase and a
thought flashed by that this might be intentional. I did receive follow
up E-mail asking why one shopping trip was not completed — allowing
the consumer to vent complaints and give preferences.
Risoldi readily admitted the first two or three experiences using
the site might have been onerous. He advised saving a previous shopping
list to cut time since most shoppers repeat many purchases from week
to week. He likened the process of becoming familiar with risoldi.com
to the inconvenience of learning the physical layout of a new store.
Risoldi’s is the first store to install the software of Supermarkets
To Go. In business since 1996, Harry Grazi of SMTG readily concedes
there has been a lack of enthusiasm at many existing supermarkets
for doing business via the Internet. But change seems imminent. "The
industry never really took off until now," he says.
Grazi attributes the current level of interest to the recent publicity
surrounding grocery E-stores such as NetGrocer and Webvan. This rising
tide of media attention has helped to lift all e-commerce boats. Grazi
believes SMTG’s package allows traditional supermarkets "to compete
well against Webvan and NetGrocer." He notes that offering wares
online allows supermarkets to pick up profitable incremental business
with minimal upheaval. Since his package offers a store pick-up option
as well as home delivery, it might even lure more traffic into the
store. Of the Risoldi site being temporarily offline, Grazi notes
that "this is a beta test for us and we are making some back-end
hardware changes that took longer than we thought."
Despite his enthusiasm for cyber shopping, Grazi goes for the middle
ground when asked to peer into the future. "It’s not going to
threaten the existence of bricks and mortar. The clear winner in almost
every situation is the hybrid model. Will it replace the supermarket
overall? No." He also acknowledges the dimension to actually going
to market that shopping on-line will be find hard to replace —
the desire to squeeze the cantaloupes or check the tuna to see if
it is really sushi quality. The new order could be an uneasy detente
as long as there remains a strong desire to choose the ripeness of
your own bananas.
— Caroline Calogero
08902. Fred Horowitz, CEO. 732-745-1000; fax, 732-745-0026. Home page:
08619. Sam Risoldi, owner. 609-586-5751. Http://www.risoldi.com.
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