Naturally, Amazon.com is among the field of contenders. The company’s AmazonFresh grocery segment is available only in the Seattle area. However, there are persistent rumors that Amazon.com CEO Jeff Bezos may soon rollout the concept to one or two other densely populated urban areas, like Los Angeles.
Meanwhile, others are building their online presence.
One of the leading online grocers in the U.S. is Relay Foods, which started in 2009. The Charlottesville, Virginia-based company operates in the Mid-Atlantic region and partners with local farmers and producers to provide fresh and locally-grown food to consumers. It recently announced a common-stock capital infusion of $8.25 million that the company will use to reach new markets in Washington, D.C., Baltimore, and Williamsburg, Virginia. The funds will also help speed up development of a dedicated mobile platform and pay for Web redesign, additional delivery vehicles, and more food storage.
In an article on VentureBeat.com, Relay Foods’ CEO Zach Buckner seemed undeterred by the challenges in online grocery retailing. “Many people consider groceries to be the Bermuda Triangle of e-commerce—a place where investment dollars go but never return,” he said. “Relay has some fairly compelling evidence to the contrary, however. Our key metrics are currently right-side-up, so we’re cranking up our bet, big time. We aren’t out of the woods yet, but I think we’re poised to do to traditional groceries what Netflix did to video rental stores.”
Online grocer Peapod has been around since 1989. It’s owned by Ahold USA and is tied to grocery chains Stop & Shop and Giant Foods. The Illinois-based company serves 24 markets in the states of Illinois, Wisconsin, Indiana, Maryland, Washington, D.C., Virginia, Massachusetts, Connecticut, Rhode Island, New Hampshire, New York, New Jersey and Pennsylvania. Peapod has made 23 million deliveries since its launch.
In April, the company debuted a new Web site, Peapodpromo.com, that offers shopping tips and promotional offers for Peapod.
Another key player is FreshDirect, a New York City-based online grocer that launched in 2002. In addition to New York City, FreshDirect is also in Philadelphia. The company’s future expansion plans call for a presence in the 15 largest markets in the U.S. At the same time, it’s in the process of moving its headquarters from Long Island City in Queens to the Bronx, where it will build a 200,000 square-foot greenhouse and also grow vegetables on the roof. FreshDirect hopes to finish the relocation by the end of 2015.
Unlike Peapod, FreshDirect does not work with established grocery chains. They source directly from a variety of meat, seafood and produce vendors. According to the company’s co-founders, Jason Ackerman and David McInerney, this keeps the focus on freshness.
In a recent interview on Yahoo.com, McInerney explained that, “Our model takes out a lot of the distribution because we’re buying it directly from the farm. We can take entire truckloads from the farm into us, often pre-selling it before it even arrives in our facility because we take orders seven days out.”
As for what people are willing to pay for online groceries, FreshDirect’s Ackerman acknowledged that, “People perceive that online is a luxury so there is a perception that prices are more expensive.” However, “We do price surveys for tens of thousands of products across all competitive landscapes, and we’re quite competitive.”
Of course, offering a good selection enhances the online shopping experience, even if it lacks discount pricing.
“Take a category like chickens—we try to offer a wide range from really traditional chickens that people see in most grocery stores, to more of the specialty higher end,” explains McInerney. “Whether it’s organic or antibiotic-free or pastured chickens, we try to provide the whole range to people so that we can hit the entire market.”
One of the newer entrants is San Francisco-based Good Eggs, which partners with some 150 small, sustainable food producers in the Bay Area. The online grocer also emphasizes a direct to consumer business model. Once an order is placed online, Good Eggs picks and preps the order from the vendors and either delivers to the customer’s door or makes the order available at one of its locations in the Bay Area.