Some online grocers are ringing up big sales as Thanksgiving approaches, while others are picking up the phone and calling liquidators to help them dispose of their assets in going-out-of-business sales.
Those diverging business results illustrate that the road to profitability in such a low-margin business is likely to be fraught with failures. For example, Streamline.com and ShopLink.com, rival online grocery stores that were both based in Westwood, Mass., made back-to-back shutdown announcements last week.
The key to success is clamping down on delivery and fulfillment costs, said Janet Suleski, an analyst at AMR Research Inc. in Boston. For example, she said, online delivery service Kozmo.com Inc. recently spent $26 million to fulfill orders for $3 million worth of groceries -- not the kind of profit margins that add up to a thriving business.
But some online grocers remain upbeat as demand rises so much that some would-be shoppers get shut out of buying some goods. For example, Webvan Group Inc. in Foster City, Calif., said a run on its Thanksgiving meals has left customers in the San Francisco area unable to order preroasted turkey with all the trimmings. However, given the tough competitive environment facing e-groceries, a Webvan spokeswoman said the company takes that kind of demand as a good sign.
"If [customers] want fresh prepared meals, they have to buy ahead," she said. Webvan's San Francisco business unit is still fighting to break even, but the spokeswoman said there hasn't been a significant increase in calls or e-mail messages to the company's customer service center as a result of the ordering difficulties for items such as the Thanksgiving dinners.
Some online grocers benefit from affiliations with established brick-and-mortar retailers. Suleski said HomeRuns.com Inc. in Burlington, Mass., is faring well partly because of its relationship with Hannaford Bros. Co., a traditional grocer that founded the online company. She added that U.K.-based grocer Tesco PLC is also doing well with its Tesco.com venture, which takes orders and leaves picking and packing to be executed in the company's stores for customers to pick up.
HomeRuns.com's sales are up by double-digit margins compared to last year, said Alison Berglund, its vice president of marketing and business development. "People pretty much have been working around the clock this season," Berglund said. But the five-year-old company has yet to turn a profit, she added.
Another example of brick-and-clicks collaboration is Dallas-based GroceryWorks.com, which has sold more turkeys and pumpkin pies this week than it did during the rest of the year combined, according to president and founder, Kelby Hagar.
So far, Hagar said, there haven't been any inventory shortages or product outages, thanks largely to the experience of GroceryWorks.com's brick-and-mortar partner, Pleasanton, Calif.-based Safeway Inc. Knowing what products to order, and how much to have on hand at GroceryWorks' facilities, "is one of the real benefits of our relationship with Safeway," he said.
Julia King contributed to this article.