Fred Horowitz and Netgrocer

Sam Risoldi’s Thriftway

Supermarkets to Go

Harry Grazi

Corrections or additions?

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.

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Fred Horowitz and Netgrocer

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

diet.

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."

Top Of Page
Sam Risoldi’s Thriftway

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

well."

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,

and produce.

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.

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Supermarkets to Go

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

recipient.

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

conventional numeration.

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.

Top Of Page
Harry Grazi

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

NetGrocer, 1112 Corporate Boulevard, North Brunswick

08902. Fred Horowitz, CEO. 732-745-1000; fax, 732-745-0026. Home page:

http://www.netgrocer.com.

Risoldi’s Thriftway, 3100 Quakerbridge Road, Mercerville

08619. Sam Risoldi, owner. 609-586-5751. Http://www.risoldi.com.

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— the web site for U.S. 1 Newspaper in Princeton, New Jersey.

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