Streamline.com has become the latest casualty in the online retail world with the announcement yesterday that it would pull the plug on its online grocery business Nov. 22.
Lack of cash and a failure to attract a suitor for buyout were cited as key reasons for Streamline’s closure. The Westwood, MA, company in September had walked out of Washington, DC, and Chicago, selling operations in those markets to rival Peapod for $12 million.
“Unfortunately this is an extremely difficult market for raising capital needed to finance Internet retailing businesses,” said Timothy A. DeMello, chairman of Streamline, in a statement.
“After months of extensive discussions with potential strategic and financial partners, we believe we have thoroughly exhausted all possible options and must discontinue our service,” DeMello said.
Founded seven years ago, Streamline targeted suburban families for Internet-based ordering of groceries. The online grocer only serves the Boston and northern New Jersey markets.
Streamline’s decision comes in the midst of hectic activity by rivals as the online grocery industry consolidates.
For instance, Webvan.com, Foster City, CA, announced the relaunch of its site last week, changed the company logo and put in place a new brand strategy. The goal is to make shopping easier, the company said. It also seeks to reflect Webvan’s new positioning as a “Last Mile” retailer in e-commerce.
Webvan, which recently absorbed competitor HomeGrocer.com in a $1.2 billion stock swap, has extended its focus beyond groceries to include electronics, specialty shops, drugs, pet supplies, baby products, books, CDs and video.
Another grocer, NetGrocer.com, announced it had a repeat purchase rate of 65 percent, bolstered by what it claims is aggressive customer acquisition, enhanced product offerings and tweaks to the Web site.
The online grocery business is not easy, however. Most recently, Priceline affiliate WebHouse Club was closed for good in October after failing to meet expectations. Even the well-funded Webvan last week was forced to charge customers for orders delivered under $75.
Another well-documented predicament was Peapod’s, an 11-year-old grocer that was saved from bankruptcy by Dutch retail giant Royal Ahold. It was as recently as June that Ahold paid $73 million to acquire 51 percent in Peapod as part of a multichannel grocery strategy for the U. S.
Peapod, Chicago, continues to operate as an independent company, while Ahold supplies the online grocer with goods, services and fast-pick fulfillment. Still, that didn’t prevent Peapod from leaving the unviable Texas and Ohio markets, as it recently did.
Streamline now plans to sell its remaining assets. It will use the cash and proceeds to pay severance to employees and settle with creditors.
“The challenge common to the online grocery space is you have to get the right product to the right customer in the right condition at the right time,” said Ellen G. Baras, analyst at William Blair, in an early October issue.
“It's more than just taking the bread and putting it on the truck. You've got to make sure you don't put the soup on top of the bread. And then there's minimum back-up,” Baras said.
Meeting customer product and time requirements is held largely responsible for the high costs of home delivery in a category that offers margins of only 1 percent to 2 percent. Heavy spending on marketing has further eroded bottom lines, leading to a gradual consolidation in that space.
For now, though, the Internet is a mere blip in total retail grocery sales.
According to Forrester Research, Cambridge, MA, U.S. food and beverage online sales were $513 million in 1999. Projections for 2000, 2001 and 2002 are $1.13 billion, $2.46 billion and $5 billion, respectively — all under 1 percent of total sales in those years.
The consumer migration to online purchases of groceries is expected to continue its tardy pace. Even in 2003 online sales will account for only 2 percent, or $10.83 billion, of total groceries sold before touching 3 percent, or $16.87 billion, in 2004, according to Forrester.
“The big challenge for the whole industry is customer acceptance,” William Blair's Baras said. “Will the mass of consumers really give up the touch-and-feel experience?”