Content area
Full Text
Keywords
Internet, Grocery, Retailing, USA
Abstract
Considers reasons for failure among pure play Internet grocery retailers. Notes that two factors seem to be significant. First, they did not achieve anything like a competitive advantage over the traditional "bricks and mortar" food retailers on those dimensions that drive the consumer store/channel choice process. Second, they did not develop a business model that reaches profitability, perhaps ever. They apparently did not foresee that total operating costs per customer were substantially higher for Internet grocery retailing than for "bricks and mortar" grocery stores, and that this new channel would have to charge consumers substantially more to reach breakeven operating levels. In fact, many pure play Internet grocers tried to price competitively against traditional food retailers and as a result, did not even cover variable costs. Hence, the more they sold, the more they lost. Eventually, they ran out of cash and were unable to raise additional movies in the market. Finally, there is some evidence that Internet grocers dramatically overestimated the size of the market for grocery shopping from the home. In the final analysis, pure play Internet grocer retailers appeared sexy and were hot for a short period of time because of the romance of the Internet. In fact, they were nothing more than fancy grocery delivery companies - which have never made money in the mass market and probably never will.
Introduction
As the year 2000 dawned, there were at least seven, apparently healthy, pure play Internet grocery companies operating in the USA. All were growing the business and entering new cities. Buoyed by numerous forecasts of significant market demand (Andersen Consulting thought the market for the online grocer business could be as big as 10 percent of the $450 billion US grocery market), several, including Streamline, Webvan, and Peapod, had successfully completed IPO's by late 1999 and had raised millions of dollars in new capital. Webvan's initial public offering in October 1999 raised $360 million alone and the company announced ambitious plans to build 26 giant warehouses, over 300,000ft^sup 2^ each, in 26 different cities.
Lost in the late dot.com euphoria were some ominous signs of trouble. First, none of the pure play US Internet grocers had even come close to...