Some online grocers gave thanks, others gave up

Some online grocers rang up big sales around Thanksgiving in the US, while others were picking up the phone and calling liquidators to help them dispose of their assets in going-out-of-business sales.

          Some online grocers rang up big sales around Thanksgiving in the US, while others were picking up the phone and calling liquidators to help them dispose of their assets in going-out-of-business sales.

          Those diverging business results illustrate that the road to profitability in such a low-margin business is likely to be fraught with failures. For example, Streamline.com and ShopLink.com, rival online grocery stores, made back-to-back shutdown announcements last week.

          The key to success is clamping down on delivery and fulfillment costs, says Janet Suleski, an analyst at AMR Research. For example, she says, online delivery service Kozmo.com recently spent $US26 million to fulfill orders for $US3 million worth of groceries -- not the kind of profit margins that add up to a thriving business.

          But some online grocers remain upbeat as demand rises so much that some would-be shoppers get shut out of buying some goods. For example, Webvan Group says a run on its Thanksgiving meals left customers in the San Francisco area unable to order preroasted turkey with all the trimmings. However, given the tough competitive environment facing e-groceries, a Webvan spokeswoman says the company takes that kind of demand as a good sign.

          "If [customers] want fresh prepared meals, they have to buy ahead," she says. Webvan's San Francisco business unit is still fighting to break even, but the spokeswoman says there hasn't been a significant increase in calls or email messages to the company's customer service centre as a result of the ordering difficulties for items such as the Thanksgiving dinners.

          Some online grocers benefit from affiliations with established brick-and-mortar retailers. Suleski says HomeRuns.com, is faring well partly because of its relationship with Hannaford Bros, a traditional grocer that founded the online company. She adds that UK-based grocer Tesco is also doing well with its Tesco.com venture, which takes orders and leaves picking and packing to be executed in the company's stores for customers to pick up.

          HomeRuns.com's sales are up by double-digit margins compared to last year, says Alison Berglund, its vice president of marketing and business development. "People pretty much have been working around the clock this season," Berglund says. But the five-year-old company has yet to turn a profit, she adds.

          Another example of brick-and-clicks collaboration is GroceryWorks.com, which has sold more turkeys and pumpkin pies this week than it did during the rest of the year combined, according to president and founder, Kelby Hagar.

          So far, Hagar says, there haven't been any inventory shortages or product outages, thanks largely to the experience of GroceryWorks.com's brick-and-mortar partner, Safeway. Knowing what products to order, and how much to have on hand at GroceryWorks' facilities, "is one of the real benefits of our relationship with Safeway," he says.

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