The demise of online perishable goods trader Southfresh is confirmation for one customer that doing business in person can’t be beaten.
Oceanic Food general manager Lachie Revell, who was putting about $60,000 of business through Southfresh each month, says she never had a great deal of faith in it. “In our market you’re probably better off with face-to-face contact.”
Last month founder Toby Warren decided to cut his losses and close Southfresh, which began online trading in 1999. Warren says it lacked the critical mass needed for viability.
“There was just insufficient take up; companies had no reason to use it today,” Warren says. But he remains convinced that e-commerce will catch on.
“It’s as obvious as telephones — I firmly believe that. We were perhaps too early and perhaps our model wasn’t right.”
According to Revell, whose south Auckland company turns over between $10 million and $15 million a year, buying and selling online is simply no substitute for human contact.
“I used to talk to Toby [Warren] every day but with Southfresh going online, I probably hadn’t spoken to him for a year.”
Revell says the customers he supplies — restaurants, hotels and caterers — are similar.
“Chefs find it easier to use the phone; they’re not online all the time.” An Oceanic customer that is an exception to the rule is Sky City which, with one other, was Revell’s only reason for going online.
“Dealing with people in person you can say ‘have you got some of this’ and, if they haven’t, immediately order something else in its place.”
Southfresh started life in the fishing industry but always planned to move into other markets once online, Warren says. One such example was automotive consumables. But expansion meant greater costs and the company went from being a money-making seafood trader to a loss-making online marketplace.
“We knew from the seafood industry that we could provide traders with a cost saving,” Warren says, but outside the fishing industry, he struggled to convince traders there was “a hard-nosed ROI”.
Warren says aside from removing cost, e-commerce offers the short-term benefit of managing transactions; in the longer term, those who take the plunge will reap information for managing their business.
Trading portal sceptic Tim Munro, of the New Zealand Logistics Association, thinks the fundamental requirement for e-commerce success is keeping third parties out of the supply chain.
“The portal operator sets up and needs to get value from somewhere,” Munro says. Either buyers will pay, or suppliers, and each needs to be shown some benefit to make it worth their while.
Suppliers might be led to expect greater sales, and be prepared to pay commission to the portal operator on those; and buyers might be enticed by the prospect of simplifying their procurement processes with the opportunity to make staff cuts. But Munro says turning those claimed benefits into reality is proving an uphill battle.
“E-commerce is the way to go but do you need a facilitator in the middle? What can a portal do that you can’t do with a direct relationship?”
Online trading hubs are expensive to set up, Munro says, whereas basic accounting packages today allow suppliers and customers to interact directly electronically.
Ironically, Munro had viewed Southfresh as a portal example which could succeed; when confined to the fishing industry, its auction framework gave buyers the ability to influence prices in real time.
Southfresh’s trading software, Varenti, is Progress-based and cost more than a $1 million to develop — some of which was provided by Technology New Zealand.
Southfresh charged customers either a 2.5% fee per transaction or a monthly subscription of $2000 to $4000.
Warren is hopeful the software might find a buyer and will continue working in the e-commerce market as a consultant.
“I’ve invested a lot of energy, time and money in this in the past few years and gained a deep understanding of e-commerce processes and possibilities.”