These Online Grocers Got It Right

Randy Parr's customers ply the crowded waterways near Houston. As barges, tugboats, and commercial ships come into port, his five-employee company, Inland Marine Supply, greets them with boxes of fresh produce, meats, and other food. The ship captains place their orders via Inland Marine's Web site; Parr's staffers fill them at grocery chain H-E-B and deliver them right to the front dock, so to speak. The average order size is about $1,300, and the average delivery charge, for about 25 boxes, is $59. Which Parr thinks is eminently fair. "It's convenient not to have to go ashore to buy supplies to last 20 days," he says.

Despite the tight economy, a number of small online grocers are reporting increased sales. Parr started Inland Marine in August 2008 with $5,000 and now pulls in about $50,000 a month. In St. Paul, Minn., Gopher Grocery posted a 116% jump in sales over the year-ago quarter, while Greenling, in Austin, Tex., expects to do $2.5 million in business this year, a 30% jump from 2008. All attribute their good fortune to targeting a specific niche and shifting consumer attitudes.

Size isn't necessarily an indicator of success in this market, says Ken Cassar of Nielsen Online, a consumer researcher, citing the rather spectacular failure of Webvan, a Foster City (Calif.) online grocery that overextended itself in the late 1990s. He estimates there are 250 online grocers nationwide, most of them small players. They're benefiting from an interest in locally produced food and from consumers trying to save money by cooking rather than eating out. Moreover, "going to the grocery store is a time-consuming process, and people are trying to work as many hours as they can," Cassar says. "A $10 delivery charge seems fair in return for the time they save."

In Minnesota, Gopher Grocery's president, William Orkin, attributes his 18-employee company's boost in sales in part to gas prices. "When you drive to the grocery store 100 times a year, it adds up," he says. Online shopping also nips the temptation of impulse buying, he adds.

But more than anything, Orkin says, customers' attitudes have changed: "This isn't a food-shopping revolution—it's an evolution in the way people shop for groceries." Customers have become comfortable filling online carts rather than physical ones. And delivery isn't viewed as a luxury or premium service, Orkin says. Customers like options such as the "quick reorder," where staples are based on prior shipments. Katie Hammond, a Gopher Grocery customer in Minneapolis, says the convenience and the prices, which are cheaper than her local supermarket, keep her coming back. "I can shop day or night; I don't have to lug groceries up the stairs; it saves me time; and they deliver for just $2," she says.

Greenling's specialty is locally produced organic food, which has won the 20-employee company some 2,000 customers. "The produce we deliver was in the ground no more than 36 hours before," says Mason Arnold, Greenling's president. "But we're not for everyone." The company makes deliveries to each neighborhood only once a week, which doesn't work for all shoppers. But it cuts gas costs by 90%, which means Greenling doesn't have to charge for deliveries. And the grocery doesn't stock anything but food—it's up to the customer to go elsewhere for sundries such as toilet paper and toothpaste. Overall, business is thriving, Arnold says: "The good news for [Greenling] is that even in a recession, people still have to eat."

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