January 16, 2007
Online Organics Grocer Keeps on Trucking
Plumgood Foods, the internet grocer specializing in the delivery of organics and natural foods, prepared meals and household supplies, has yet to make money, but the company is getting bigger nonetheless with an infusion of $1 million in investment capital.
The two-year old company that serves parts of Tennessee and Kentucky will use the money as it moves from its current warehouse space to a larger 30,000 square-foot location. Plumgood’s current space is about 10,000 square-feet.
While the company has yet to turn a profit, company founder and CEO Eric Satz has taken a conservative approach that has helped Plumgood Foods keep costs down. At the same time, the business has continued to grow revenues and attract investment capital.
Stuart McWhorter, managing partner of the equity firm Clayton Associates, told the Nashville Business Journal, “Getting a third round (of financing) suggests that they are hitting their numbers and growing. If a company is doing well in terms of hitting budgets, investors tend to be much more patient.”
Patti Freeman Davis, senior retail analyst at Jupiter, said, “Of course you never know what will happen with an individual company, but (online grocery shopping) is growing at a fast pace.”
“A start-up business, especially one with a warehouse and refrigerated trucks, is going to take a while to make a profit,” she added. “What’s important is that they have benchmarks for growth that make sense.”
Mr. Satz explained his strategy for building the business. “We have been building the infrastructure and the approach. You have to learn to crawl before you can learn to walk.”
The infrastructure investments, according to the NBJ report, include proprietary software and other “technical secrets” to make the company more efficient at receiving and fulfilling customer orders. Mr. Satz is looking to create a system that will have the ability to be exported to other high-density consumer markets.
The online grocer has been successful in upping revenues through its prepared food offerings, which include gourmet meat entrees, soups, salads and desserts. Plumgood’s Satz said the company is looking to add ethnic-style foods to its menu of options. Currently, prepared foods make up 15 percent of company revenues with the goal of these items eventually reaching 25 percent.
The company has a regular customer base of 2,500 with the average order between $75 and $100.
Discussion Questions: What’s your opinion on the potential profitability of online grocers? Are online grocery companies that focus on serving a niche such as organics/natural products or prepared foods more or less likely to succeed than those that take a broad-based approach?
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Just because several over-heated online grocery startups in the recent past crashed and burned doesn’t mean that a conservatively operated online ordering and delivery service must be inherently uneconomic. But it still won’t be easy for Plumgood to grow to profitable scale as a stand-alone.
To succeed, online grocery services must be highly focused on helping shoppers master home pantry management — a solution selling, not product selling mentality. Recent learnings in shopper insight hold the key here: all shopping trips are not alike, and all wallets are split. Home delivery services may well capture some planned stock-up, home inventory replenishment trips, but they will rarely if ever substitute for the last minute meal trips.
Fortunately for an organic e-grocer like Plumgood, it targets a relatively upscale, higher margin segment. But it must also accept the reality that its shopper universe is limited to a fraction of the wallets of a fraction of the population. Hopefully for Plumgood, this “tail” will prove long enough to sustain a profitable niche. Since it can only deliver a portion of a household’s pantry management solution, its value will be naturally constrained.
Despite the numerous threadbare platitudes in this report (crawling before walking, etc., etc.), this is the kind of underdog business you root for. They’re facing an uphill battle, especially in a geographical market that couldn’t exactly be classified as “cutting edge” or “early adopters.”
They must have something special and, as others have noted, it must be customer service. We have a similar business here in NorCal (definitely cutting edge early adopters), and it’s not going so well. Great-looking trucks, nice graphics, beautiful website, etc., but I can’t get them on the phone! I’ve left several messages indicating a desire to purchase and requesting a callback, but have heard nothing. And–here’s the kicker–the owner’s mother lives directly across the street from me and even she can’t get him to call me.
The problem with the failing, unprofitable online models projected by major chains is that they must include their customary versions of service (poor) and prices (low) into the mix. Boutique online grocers, however, can include their version of service (excellent) and prices (high) into a profitable business.
Online grocers who create the right infrastructure and specialize can succeed in the future. The next generation will only be more pressed for time and will undoubtedly have better technology to help not only in the transaction process but also in delivery and product preservation. The consumers of tomorrow will see online shopping for food as natural as baby boomers view going to the grocery store.
I could be wrong but I seem to remember this conversation taking place in 1998. However, I can understand why the debate continues.
I think we have yet to see the profitable online grocery model in the U.S. I agree it’s a matter of infrastructure. At the same time, I think many retailers still have a bricks versus clicks mentality. It’s not a matter of either/or, but melding the two within your current operations.
Profitability would be nice. It’s what we all strive for, of course. However, let’s not forget this business is about customer service. This is one of them. If it’s not losing you a ton of money, continue to work on your online presence and sell it to your customers as another point of differentiation — which, by the way, are becoming increasingly scarce.
The market for this service is the upscale market, and that’s a growth market for the future.
What is interesting from a marketing perspective is the growth of the broader affluent market (the 15% of US households with incomes over $100,000 a year), the near-affluent (about a third of all households have annual incomes over $60,000), and the “affluent-minded” (consumers that know and seek quality, status and prestige whatever their income). Together that’s probably half of all Americans!
The Boston Consulting Group, an authority in the area of affluence, valued the market for luxury goods and services last year at $400 billion, or 12% of all retail sales. They also compute the luxury sector to be growing at a clip of 15% a year, heading toward $1 trillion by decade’s end. But those figures do not include the smaller purchases that have become “luxury-minded” indulgences (such as Starbucks coffees or branded bottled waters).
Luxury today is defined more broadly. The expectation of luxury has now become a mass phenomenon. Luxury consumers are very diverse, are coming into the category from all different points of entry, and define for themselves what luxury means. That could spell a good future for home delivery of groceries ordered online. But you have to know who your customers are to make it work.
Online grocery shopping is here to stay and will grow over time. Just as we have seen supermarkets segment their target customer base, we should expect the same from online shopping. The biggest growth in online grocery shopping will come when they take the Baby Boomers’ drivers licenses away.
Organic or not, prepared foods or not, internet grocers have no clear model for profitability. Compared to the costs of picking, packing, and delivery, food margins are inadequate. E-commerce has been a huge industry for more than a half-dozen years. Numerous entrepreneurs as well as long-established well-capitalized grocers have tried internet grocery sites. It’s very hard to be optimistic about a business that has exhibited such universal lack of profitability, regardless of approach.
Mark is correct. I’ve seen research done by major grocery firms and the conclusion is: it is not profitable. Sure there are a few isolated places in this country where it does work but basically, online grocery shopping is a loser. There is a reason Wal-Mart is investing more money in bricks and not clicks to sell their groceries. Frank Dell does has some insight about when the baby boomers can no longer drive, then demand might go up. Or the day when operating an automobile is no longer practical. But as long as we can get to the supermarket and grocers continue to make shopping a pleasant experience, don’t look for online grocery shopping to have much of an impact.
I would be willing to wager that Plumgood Foods has no meaningful “proprietary” software or other “technical secrets,” and this is the last we will hear of them on RetailWire.
I agree with many of my fellow panelists. The online grocer concept has been tested many times and continues to fail. There is no secret sauce here. The key to success in the grocery business is great customer service, combined with good product selection and reasonable pricing. Most important to the grocery business is the “look and feel” of the grocer’s environment. The online environment takes this away. Cooks don’t purchase tomatoes online, because they can’t look, touch and feel the produce. Until this hurdle is overcome, online shopping will continue to be an insurmountable hurdle.
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Just because several over-heated online grocery startups in the recent past crashed and burned doesn’t mean that a conservatively operated online ordering and delivery service must be inherently uneconomic. But it still won’t be easy for Plumgood to grow to profitable scale as a stand-alone.
To succeed, online grocery services must be highly focused on helping shoppers master home pantry management — a solution selling, not product selling mentality. Recent learnings in shopper insight hold the key here: all shopping trips are not alike, and all wallets are split. Home delivery services may well capture some planned stock-up, home inventory replenishment trips, but they will rarely if ever substitute for the last minute meal trips.
Fortunately for an organic e-grocer like Plumgood, it targets a relatively upscale, higher margin segment. But it must also accept the reality that its shopper universe is limited to a fraction of the wallets of a fraction of the population. Hopefully for Plumgood, this “tail” will prove long enough to sustain a profitable niche. Since it can only deliver a portion of a household’s pantry management solution, its value will be naturally constrained.
Despite the numerous threadbare platitudes in this report (crawling before walking, etc., etc.), this is the kind of underdog business you root for. They’re facing an uphill battle, especially in a geographical market that couldn’t exactly be classified as “cutting edge” or “early adopters.”
They must have something special and, as others have noted, it must be customer service. We have a similar business here in NorCal (definitely cutting edge early adopters), and it’s not going so well. Great-looking trucks, nice graphics, beautiful website, etc., but I can’t get them on the phone! I’ve left several messages indicating a desire to purchase and requesting a callback, but have heard nothing. And–here’s the kicker–the owner’s mother lives directly across the street from me and even she can’t get him to call me.
The problem with the failing, unprofitable online models projected by major chains is that they must include their customary versions of service (poor) and prices (low) into the mix. Boutique online grocers, however, can include their version of service (excellent) and prices (high) into a profitable business.
Online grocers who create the right infrastructure and specialize can succeed in the future. The next generation will only be more pressed for time and will undoubtedly have better technology to help not only in the transaction process but also in delivery and product preservation. The consumers of tomorrow will see online shopping for food as natural as baby boomers view going to the grocery store.
I could be wrong but I seem to remember this conversation taking place in 1998. However, I can understand why the debate continues.
I think we have yet to see the profitable online grocery model in the U.S. I agree it’s a matter of infrastructure. At the same time, I think many retailers still have a bricks versus clicks mentality. It’s not a matter of either/or, but melding the two within your current operations.
Profitability would be nice. It’s what we all strive for, of course. However, let’s not forget this business is about customer service. This is one of them. If it’s not losing you a ton of money, continue to work on your online presence and sell it to your customers as another point of differentiation — which, by the way, are becoming increasingly scarce.
The market for this service is the upscale market, and that’s a growth market for the future.
What is interesting from a marketing perspective is the growth of the broader affluent market (the 15% of US households with incomes over $100,000 a year), the near-affluent (about a third of all households have annual incomes over $60,000), and the “affluent-minded” (consumers that know and seek quality, status and prestige whatever their income). Together that’s probably half of all Americans!
The Boston Consulting Group, an authority in the area of affluence, valued the market for luxury goods and services last year at $400 billion, or 12% of all retail sales. They also compute the luxury sector to be growing at a clip of 15% a year, heading toward $1 trillion by decade’s end. But those figures do not include the smaller purchases that have become “luxury-minded” indulgences (such as Starbucks coffees or branded bottled waters).
Luxury today is defined more broadly. The expectation of luxury has now become a mass phenomenon. Luxury consumers are very diverse, are coming into the category from all different points of entry, and define for themselves what luxury means. That could spell a good future for home delivery of groceries ordered online. But you have to know who your customers are to make it work.
Online grocery shopping is here to stay and will grow over time. Just as we have seen supermarkets segment their target customer base, we should expect the same from online shopping. The biggest growth in online grocery shopping will come when they take the Baby Boomers’ drivers licenses away.
Organic or not, prepared foods or not, internet grocers have no clear model for profitability. Compared to the costs of picking, packing, and delivery, food margins are inadequate. E-commerce has been a huge industry for more than a half-dozen years. Numerous entrepreneurs as well as long-established well-capitalized grocers have tried internet grocery sites. It’s very hard to be optimistic about a business that has exhibited such universal lack of profitability, regardless of approach.
Mark is correct. I’ve seen research done by major grocery firms and the conclusion is: it is not profitable. Sure there are a few isolated places in this country where it does work but basically, online grocery shopping is a loser. There is a reason Wal-Mart is investing more money in bricks and not clicks to sell their groceries. Frank Dell does has some insight about when the baby boomers can no longer drive, then demand might go up. Or the day when operating an automobile is no longer practical. But as long as we can get to the supermarket and grocers continue to make shopping a pleasant experience, don’t look for online grocery shopping to have much of an impact.
I would be willing to wager that Plumgood Foods has no meaningful “proprietary” software or other “technical secrets,” and this is the last we will hear of them on RetailWire.
I agree with many of my fellow panelists. The online grocer concept has been tested many times and continues to fail. There is no secret sauce here. The key to success in the grocery business is great customer service, combined with good product selection and reasonable pricing. Most important to the grocery business is the “look and feel” of the grocer’s environment. The online environment takes this away. Cooks don’t purchase tomatoes online, because they can’t look, touch and feel the produce. Until this hurdle is overcome, online shopping will continue to be an insurmountable hurdle.