Grocery Home Delivery - Failures

Jim Lukens publishes a weekly email that highlights a specific idea for grocers. Many of his ideas can be adapted for other retailers to incorporate. Recently, Lukens distributed two emails that cover failures and successes related to grocers' home delivery efforts. He has graciously allowed me to repost both emails here. Today, Lukens looks at failures. On Thursday, he will cover successes.

Early Failures Shouldn't Dissuade You

This week's Idea of the Week (week 1 of 2) touches on home delivery companies with a legacy of failure in their quest to be successful at grocery home delivery.

When I talk to retailers about Grocery Home Delivery, the conversation normally begins with the fear of failure - based on other companies failures in the past. It's a big commitment. It's a big expense. It's also a big opportunity to expand your sales and margins and a big opportunity to reach new customers.

(In the next post,) we'll touch on some unique features that different retailers are taking to differentiate their home shopping programs.

Home Delivery Isn't a New Concept

  • Home Delivery worked in the 1940's- and later died
  • Home Delivery worked in the 1950's- and later died
  • Home Delivery worked in the 1960's- and later died

With advanced technology, in 1990-s - and very quickly died

Now it's time to learn from past failures and succeed.

In the 1940's the lack of supermarkets in the Carney, MD area helped startup a Home Food Service Truck for deliveries.

In Wisconsin, Oscar Mayer was making home deliveries of ice throughout neighborhoods.

In the 1950's and 1960's home delivery of food products was the norm in many neighborhoods. The milk man, bread man and even potato chip man were popular.

What caused their demise? Grocery stores were becoming "supermarkets" and mainstream grocers began enhancing the shopping experience with service departments. Variety, convenience and price.

Dreams of making grocery shopping easier began to surface. Grocery home delivery doesn't require the best technology and the most grocery smarts....but that combination certainly helps. It's simple...you need what your customers want to buy and a cost effective way of delivering those needs profitably.

The Dot-Com Era Experiences Home Delivery Flops 2 of the top 3 biggest Dot-Com Busts Were Home Delivery

Beginning in 1998 the Dot-Com era introduced new, emerging technologies to enable grocery home delivery. A great combination but leading the edge technologies didn't work. It was the era of technologists with great ideas jumping into competition with grocers.

A large part of the failure wasn't the available technology. A major issue was that technology companies were launching their new home delivery concepts without grocery and logistics experience.

Consultants ruled the Dot-com era and millions in investments were lost in a short 2 to 3 years period.

Of the top 10 dot-com flops - 2 of the top 3 were home delivery companies

  1. Webvan (1999-2001)- Lost $1.3 billion in market value
  2. Pets.com (1998-2000)
  3. Kozmo.com (1998-2001)- Home delivery in 30 minutes

The second biggest dot com flop wasn't food home delivery. Pets.com took off fast in 1998 and died two years later.

The third largest dot-com flop was Kozmo.com Kozmo.com was a home delivery service where you could order products from movies to snack foods and have them delivered to your home in an hour. Free delivery. Kozmo.com raised $280 million and put together a $150 million promotional deal with Starbucks before crashing.

The #1 dot-com flop: Webvan - Burning through $1 billion

In the late 1999 I was invited to Foster City, California (near Silicon Valley) to meet with senior executives of a newly formed company "Webvan" - the first large scale grocery home delivery company in the nation.

Their post IPO stock performance was at $26 a share. Within 3 years they were out of business.

After signing non-disclosure agreements and statements that I wouldn't photograph anything during my visit I was given a tour a Webvan's impressive distribution center. Amazing technology. Amazing distribution system.

The service Webvan offered was first perceived as a delight. Their first time customers received $10 off their initial order, which showed up right on schedule slightly more than 24 hours after selecting the "confirm purchase" button. That was the first delivery window available.

The Webvan driver carried the groceries to the home and unpacked them from their carrying crates right onto kitchen tables. Prices were somewhat competitive.

Webvan was starting up a new company to provide grocery home deliveries within-30 minute windows of their customer's choosing. I liked the concept.

The following week Webvan flew me to Baltimore to visit a new distribution center that was under construction. Senior executives were recruited from consumer packaged goods companies. In my mind it was a combination of technologist and brand managers - where were the grocery experts?

The tab for building their warehouse network? $1 billion.

I thought it was odd that every person (not most- every) I met at Webvan had no grocery distribution or operations experience. The closest I came to meeting anyone at Webvan with grocery experience were senior level managers who once worked for Proctor and Gamble - but again, no grocers in the group at all.

Plenty of folks who worked for consulting companies and technology companies but not a "can stacker" in the group. That was by design as they wanted to invent a new business, not change an existing business.

Most of the home delivery business models that have worked were built from experienced distribution companies who leveraged the internet and technology.

By January of 2001 Webvan postponed plans of its rollout of service in New Jersey, Washington DC and Baltimore.

In 2008 CNET named Webvan the largest dot-com flop in history. Webvan went bankrupt and remnants were resurrected by Amazon.com in 2009.

Some industry analysts estimated that Webvan lost up to $130 per order when all the expenses were rolled into the sales.

Why did Webvan home delivery fail?

It's great that a company could deliver within a 30 minute window but many customers wanted groceries delivered in the evening. Ordering a day in advance just isn't convenient.

The infrastructure and overhead that Webvan built bankrupted them.

Lack of grocery experience within their senior management team didn't help.

Simon Delivers: Making Improvements on the Webvan model - Regional vs. National

Around the same period of time that I had visited Webvan in San Francisco and Baltimore, I met Simon Foster in my office in Minneapolis.

Simon had a strong background in Great Britain with a Pillsbury prototype program that provided home delivery of food within 30 minutes in England.

Most of the business was focused on "Domino's" style food ordering - guys watching a soccer game on TV and ordering snacks and alcohol for home delivery in 30 minutes.

Simon had "been there....done that" already in England and was eager to use a similar model in the US ---- but not take on the entire nation. His idea was to focus locally on home delivery and explained to me that the Simon Delivers drivers would be similar to what many of us experienced in the 1960's with the milk man that was part of the community fabric. Someone everyone knows and recognizes - and trusts.

Simon was looking for help in sourcing food. Should it come from a food wholesaler to a distribution center for delivery---- or should it be a storefront that during startup could select orders from traditional grocery shelving vs. warehouse selection bays.

Like WebVan he was sure that the distribution center model was the solution. However, he knew that spending $25 million on a DC wasn't in the cards.

Simon's a brilliant guy and worked hard to market the concept in the Minneapolis marketing area.

It's easy to say that something failed because "it was before it's time" but unfortunately, the market just wasn't ready for Simon Delivers.

Prices weren't noticeably competitive with CUB, Rainbow Foods and other price impact stores.

What seemed to be lacking wasn't the idea, the infrastructure or the marketing ---- Simon Delivers just couldn't procure food products low enough to have competitive prices with acceptable margins.

SimonDelivers sent emails to customers in 2008 that is was suspending business for two weeks and later announced on it website it was closed.

A month later Coborn's had acquired the company and by October of 2008 had CobornsDelivers trucks on the road.

We'll touch on CobornsDelivers next week when we talk about successes.

Why did SimonDelivers fail?

Like Webvan, the necessary infrastructure to run a home delivery business requires grocery experience and distribution experience - coupled with technology. If you have the infrastructure in place, you can compete- even without the best technologies.

Without the infrastructure in place - technology won't help much.