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One of the biggest challenges in online retailing has been to persuade shoppers to trade the familiarity of their neighborhood food market and drugstore for the convenience of shopping on the web. And after some spectacular failures by others in early dot-com days, the current crop of food and drug e-retailers are giving consumers more reasons to shop online.
"Grocery is growing, but still one of the smaller categories in online retail," says Jupiter Research analyst Patti Freeman Evans. "So a site has to offer additional value to make consumers willing to pay for shipping or wait for delivery."
The food and drug web merchants in this year`s Top 50 are doing just that. And not only with extensive product lines and high-end service, but with innovative marketing that supports multi-channel shopping.
At Schwans.com, for instance, registered online shoppers earn a point redeemable toward the purchase of gift and housewares items in the store with every dollar spent online. The web site, meanwhile, offers a growing list of more than 400 non-food items ranging from cookware to travel services. "We know that when we bring our customers online, they buy more from us, their average order increases, and customer retention goes up," says director of e-commerce and emerging channels Glenn Bader.
Peapod.com has mastered the art of balancing the online shopper`s need for speed with increasingly sophisticated grocery merchandising that boosts basket size. "First-time customers weren`t getting their orders in because there was so much information," says Thomas Parkinson, chief technology officer and senior vice president. "What they want to see is the browse aisle, search and specials, so now the information is lined up that way in three panels."
On successive visits, registered Peapod customers see progressively different displays, with merchandising becoming more extensive as they gain experience with the site and build up history in the database. Peapod is also taking advantage of co-branding opportunities with eastern grocery chains Giant and Stop & Shop, which are sister companies to Peapod through Royal Ahold. "You`ve got loyal shoppers to those chains, so there`s instant credibility for Peapod," Parkinson says.
In New York City, where street traffic alone presents a major challenge to grocery deliveries, online food shoppers can place an order on FreshDirect.com as late as midnight on weekdays and 9 p.m. on weekends and still receive next-day delivery.
But FreshDirect is growing with more than just an effective delivery system. It`s also building relationships with customers in multiple ways. To personalize the shopping experience, FreshDirect features its executive chefs and food department managers prominently in merchandising portals and on the sides of its 100 delivery vehicles.
At Drugstore.com, one key to growth has been taking the extra step to get customers what they want, in effect providing the kind of service shoppers would expect from a neighborhood pharmacy. When a supplier discontinued a line of wood-stick cotton swabs, for instance, "We went back to the manufacturer and made it worthwhile for them to bring it back, because customers had fallen in love with it," says Ron Kelly, senior director of site merchandising. Drugstore.com
Trust?and functionality
Getting consumers to pass up their neighborhood pharmacy to shop online is not an easy task. "What`s the value proposition of going online?" asks Peter Spear, a stock analyst with investment firm Delafield Hambrecht. It may be convenient for some, but shipping costs and a general lack of discounted prices puts the online pharmacy business in a tough position to win shoppers, he says.
Nonetheless, he adds, Drugstore.com is building both revenue and number of loyal customers. "There`s a solid niche of people who use their site," says Spear, who owns no shares of Drugstore and whose firm has no investment relationship with it. "They`re definitely the most prominent of online pharmacies."
So what is Drugstore doing right that sent third-quarter sales up 41% year-to-year to $84 million? It`s building trust with its customers, says Joe LaCugna, senior director of web analytics. He ticks off Drugstore`s fortes: offering a useful range of competitively priced products not always found in stores, a responsive customer service department and a functional web site ranked as having the top site search in a recent study by Jupiter Research. "75% of our revenue comes from repeat customers," he says.
Ron Kelly, senior director of site merchandising, says Drugstore has also been willing to take an extra step to get the products its customers demand. When a supplier discontinued a line of wood-stick cotton swabs, "we went back to the manufacturer and made it worthwhile for them to bring it back, because customers had fallen in love with it," he says.
Drugstore offers a "Your List" feature that lets customers re-order products from a menu of previously purchased items, helping to boost conversion rates, LaCugna says. "The conversion rate on repeat customers who use our site search is 10 times higher than it is for new customers," he says.
Drugstore also offers a loyalty program that provides a 5% rebate on all purchases in each quarter. That comes in pretty handy when someone purchases one of Drugstore`s newer offerings, the $1,495 Philips heart defibrillator, which more than anything proves the strong relationship Drugstore has built with its customers, Kelly says. "We`ve shown that even at $1,500 we can move products," he says. Drugstore.com Inc.
13920 SE Eastgate Way Bellevue, WA 98005
Date Launched
February 1999
Unique visitors (monthly)
2,731,000*
Annual Web-Based Sales
$355-$370,000,000 (est. `04)
Vendor Relationships
Site Design
In-house
E-Commerce Platform
In-house
Web Hosting
Sawis, Exodus
Site Search
In-house
Content Management
In-house
Order Management
In-house
Payment Processor
Global Payments
Fulfillment
In-house
Affiliate Marketing Management
LinkShare, In-house
Search Engine Management
In-house
E-Mail Marketing
In-house
CRM
In-house
Web Analytics
In-house
Content Delivery Network
Akamai Technologies, In-house
Rich Media
RichFX
*comScore Networks report, October 2004 FreshDirect.com
Delivering the goods
Headquartered in Long Island City, N.Y., FreshDirect is five years into its corporate mission of becoming the web grocer of choice for the nation`s most congested food services market--New York City.
To build critical mass in Manhattan, FreshDirect combines aggressive supply chain management, daily deliveries from a network of mainly local and regional suppliers and an innovative delivery strategy: Online food shoppers can place an order on FreshDirect.com as late as midnight on weekdays and 9 p.m. on weekends and still receive next-day delivery. To deal with congestion, a common occurrence in Manhattan, FreshDirect often expands the number of workers assigned to a single delivery van to three and uses a network of central drop-off points and pedestrian employees to make deliveries on time.
On the web, FreshDirect features more than 8,000 SKUs and is adding new lines such as Aaron`s Best, a line of kosher meat products. Each month about 300,000 unique visitors click on FreshDirect.com and spend about $110 on each order. To personalize the shopping experience, FreshDirect features its executive chefs and food department managers prominently in merchandising portals and on the sides of its 100 delivery vehicles.
FreshDirect has the infrastructure in place to process as many as 1,000 orders per hour. Recently, FreshDirect started a catering and food delivery service for more than 200 corporate customers in central Manhattan. "We use the web to expedite order taking and our local food supply network to deliver fresh food at very competitive prices," says FreshDirect president Steve Michaelson. "We are implementing a regional strategy that`s working in a very challenging market."
Although web grocer Peapod Inc. is beginning to serve New York`s suburbs, FreshDirect, for now, is the only online food services company aggressively going after New York City. "Their web site is very straightforward with a good selection of merchandise," says Willard R. Bishop Jr., president of Willard Bishop Consulting, a Barrington, Ill., food services and retailing consulting firm. "They will be very successful if they keep costs down and be even more efficient with their supply chain." FreshDirect Inc.
23-30 Borden Ave. Long Island City, NY 11101
Date Launched
July 2001
Unique visitors (monthly)
300,000
Annual Web-Based Sales
$120,000,000 (2003)
Vendor Relationships
Site Design
In-house
E-Commerce Platform
In-house
Web Hosting
In-house, InterNAP
Site Search
In-house
Content Management
In-house
Order Management
In-house
Payment Processor
Cybersource
Fulfillment
In-house
E-Mail Marketing
Silverpop
CRM
In-house
Web Analytics
Sane Solutions, NetTracker Peapod.com
Piling grocery carts higher
Peapod`s goal is to get shoppers down its virtual grocery aisles and checked out quickly--and along the way, to sell shoppers as much as possible. After 14 years in the business, it`s mastered the art of balancing the online shopper`s need for speed with increasingly sophisticated grocery merchandising that boosts basket size.
Its "1-2-3" interface--new this year--is just one example. "First-time customers weren`t getting their orders in because there was so much information. What they want to see is the browse aisle, search and specials, so now it`s lined up that way in three panels," says Thomas Parkinson, chief technology officer and senior vice president.
On the first visit, the home page offers shoppers the choice to learn more about Peapod or, upon entering a ZIP Code, to start shopping. On successive visits, registered customers see progressively different displays, with merchandising becoming more extensive as they gain experience with the site and build up history in the database.
The strategy has raised the average order from $100 to $145 this year. Conversion rates stay on retail`s high side at 10% to 15%, Parkinson says. The company, in which Dutch food company Royal Ahold acquired a majority stake in 2000, is growing on plan at the rate of 25% a year. Feeding that growth is Peapod`s co-branding in eastern markets with grocery chains Giant and Stop & Shop. "The bricks-and-clicks strategy when we enter a new market is critical. You`ve got shoppers loyal to those chains, so there`s instant credibility for Peapod," says Parkinson.
One of Peapod`s most novel innovations to date is in development for possible rollout next year. By fitting its delivery trucks with GPS navigation, it plans to be able to contact customers when trucks are within 10 minutes of delivery.
Jim Okamura, senior partner with J.C. Williams Group retailing consultants, says Peapod has continued to meet customers` expectations as it`s scaled up in size, an operationally risky transition that`s felled other companies. "They deliver on the promise of providing a more convenient shopping experience, for example, in how they have been able to manage their delivery window. That means a lot to customers," he says. Peapod.com
9933 Woods Drive Skokie, IL 60077
Date Launched
July 1990
Unique visitors (monthly)
244,000*
Annual Web-Based Sales
$140,000,000**
Vendor Relationships
Site Design
In-house
E-Commerce Platform
In-house
Web Hosting
In-house
Site Search
In-house
Content Management
In-house
Order Management
In-house
Payment Processor
Paymentech
Fulfillment
Own warehouses, limited store fulfillment
Affiliate Marketing Management
Performics
E-Mail Marketing
In-house
CRM
In-house
Web Analytics
MyComputer
Content Delivery Network
Speedera Networks
Rich Media
The Stone Road
*comScore Networks report, October 2004
**Internet Retailer Top 300 Guide est., 2003 Schwans.com
More products = more loyalty
Retailers know it`s less costly to sell more to existing customers than to acquire new ones. This year, the Schwan Food Co. proves that maxim by putting a new product category at the center of a new rewards program that`s encouraging broader purchase across Schwans.com.
With a growing list of more than 400 items ranging from cookware to travel, the new home and gift store at Schwans.com expands the online offering into territory beyond the premium food and meal solutions that are the staples of Schwan`s b2c business. While added sales from the category are a win on their own, the new tab also drives sales across the online store. Registered online shoppers earn a point redeemable toward the purchase of goodies in the store with every dollar spent on food at Schwans.com.
Schwan`s has a call center, and the route managers who deliver pre-ordered goods locally also sell from their trucks. Yet, "We know that when we bring our customers online, they buy more from us, their average order increases, and customer retention goes up," says director of e-commerce and emerging channels Glenn Bader. "This was a way to not only increase the frequency of purchase but to get offline customers to order online."
Jupiter analyst Patti Freeman Evans adds that the addition of the home and gifts category also provides a strategic entry point for new consumers to try the brand out. "Grocery is growing, but still one of the smaller categories in online retail. So a site has to offer additional value to make consumers willing to pay for shipping or wait for delivery," she says.
The program also supports the route mangers that Bader calls the backbone of the b2c business. As the volume of web orders rises, managers hit the road with a larger amount of the day`s inventory pre-sold, reducing their time at customers` doors. Bader says 800,000 customers have registered for the rewards program and that redemption is exceeding even Schwan`s most aggressive forecast. Part of that results from another expansion move launched this year when Schwans.com started shipping orders of frozen food via FedEx to areas where its trucks don`t deliver. "We`ve turned on every ZIP Code except Alaska and Hawaii," says Bader. The Schwan Food Co.
115 W. College Dr. Marshall, MN 56258
Date Launched
1998
Unique visitors (monthly)
800,000*
Annual Web-Based Sales
$150,000,000**
Vendor Relationships
Site Design
In-house
E-Commerce Platform
Microsoft
Web Hosting
In-house
Site Search
Inktomi
Content Management
In-house
Order Management
In-house
Payment Processor
Paymentech
Fulfillment
In-house
Search Engine Management
OneUpWeb, Traffic Buyer
E-Mail Marketing
In-house
CRM
E.piphany
Web Analytics
WebSideStory
Content Delivery Network
AT&T
*outside estimate reported by company
**Internet Retailer Top 300 Guide est., 2003 SimonDelivers.com
Starting small
Internet history is full of companies that tried to sell groceries online and failed. That`s part of what makes SimonDelivers.com stand out. This online grocer has found a formula that is successful--at least on a small scale.
"They`ve been able to sustain their business to a level that proves this model works," says Bill Bishop, president of Willard Bishop Consulting, a Barrington, Ill.-based supermarket consulting firm. "The difference between Simon Delivers and the others is that Simon Delivers has taken greater control over its delivery schedule so that it can reduce its costs."
Simon Delivers adopted what Bishop refers to as the "newspaper route delivery" model where delivery trucks follow a neighborhood-based route to more efficiently deliver groceries.
Another advantage to Simon Delivers is that it started small and didn`t take on too big a challenge right away. "We didn`t try to develop a national footprint right away; we stayed regional to prove that our model works before we expanded," says Christopher Brown, CEO. Its territory includes a seven-county region near the Twin Cities. And while it plans to take on additional territory, right now its current market suits it fine. "There are a million households in the Twin Cities and we serve between 25,000 and 30,000 of them. We think there is plenty of room to grow. Then, we can pick a second city and duplicate what we have done here."
Equally important to the online grocer`s success as delivery is the web site itself and making sure consumers find it easy to use. "We recently simplified our site. Now customers can take a quick look at just our specials. They can also click on My List to view the products they routinely buy. A high percentage of our customers buy the same items every week. We let them automatically order those items and then they can browse the aisles for additional items," Brown says.
Simon Delivers also offers "one-click meals." By clicking on such a meal, shoppers get the recipe and can automatically order all the required ingredients. It also provides shoppers a quick summary of organic and natural food items and a search capability for shoppers looking for low-carb meals. To spur additional sales, it has added floral and home office supplies. SimonDelivers Inc.
3440 WinPark Drive New Hope, MN 55427
Date Launched
1999
Annual Web-Based Sales
$64,000,000 (2004)
Vendor Relationships
Site Design
In-house
E-Commerce Platform
In-house
Web Hosting
ACS/BlueStar
Site Search
DT Search
Content Management
In-house
Order Management
SAP
Payment Processor
Wells Fargo, Paymentech, First Data Merchant Services
Fulfillment
SAP/Catalyst
Affiliate Marketing Management
In-house
Search Engine Management
DT Search
E-Mail Marketing
In-house
CRM
In-house
Web Analytics
WebTrends
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