In 1997, while working for a Toronto-based digital marketing agency, Stephen Tallevi met a local entrepreneur keen to launch an e-commerce site on the new-fangled internet. One meeting led to many, and Grocery Gateway delivery service was born.
“Back then it was easy,” says Tallevi, now general manager. “You built something, and before you knew it you had a live demo and interest from investors. In the first round, we got just under $35 million in venture capital and went for the big model: the thoroughly automated fulfillment center, lots of vehicles and strong branding,” he says.
That is, until the dot-com bubble burst in 2000, and investors’ patience began wearing thin. Grocery Gateway was saved by its partner, family-run Longo’s supermarkets, which bought the online service in 2004 and immediately sold off the trucks and fulfillment center. Yet it remains the largest online grocery in Canada, posting double-digit growth most years, Tallevi says.
click image to zoomJean Carder Many have tried and failed — California’s Webvan remains the most spectacular flame-out — to bring a welcome service to time-starved consumers and capture an online slice of the U.S. grocery market, worth $589 billion in 2010. Of $8 billion spent on online shopping in the U.S. that year, groceries represented just 1.4%, compared to 3.4% in the United Kingdom, the largest market for online delivery.
“Grocery delivery is tough,” says William Orkin, founder and president of Minneapolis-based Gopher Grocery, which launched in 2006 in the Twin Cities and has seen revenues rise from $64,000 to about $1.5 million in 2012.
“You’re taking a normal supermarket business with low-margin groceries, and you’re adding a service to it,” Orkin says. “Finding the scale and a model that allow you to keep costs down for the consumer while making a profit has been a struggle for everybody, yet everyone wants to crack the code for it.”
The key to Gopher Grocery’s success has been not carrying inventory. Instead, Orkin’s company relies on ultra-efficient distributors and wholesalers who take just-in-time inventory management to the extreme.
“By leveraging infrastructure that’s already in place, we’re able to be profitable with a much smaller customer base than a giant wholesaler or retailer,” he says. “It also allows us to carry a huge product assortment, including exotic fruits and vegetables, for about the same price as shopping in a store.”