As fast as e-commerce in the food sector was turned on last year, it is being turned off this summer. High profile casualties like Webvan in America and IngredientsNet.com in Ireland make the headlines but there are many sites where the lights are still on even if no one is there anymore. Countless others are just monuments to what they might have been. Drew Smith takes stock – and forecasts the fallout.
The collapse of Webvan in the United States and the lesser known HomeRun.com in Boston within a few days of each other marks the long anticipated consolidation of the home delivery market in food.
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Even as these virtual delivery services were discovering that they could not live in a market place without a bricks and mortar expertise, both the UK-based Tesco group and the 
Dutch retailer Royal Ahold were moving in on the sector. And in a less publicised move the travel site LastMinute.com also grabbed up restaurant delivery service Urbanbite.com.
Webvan may have been the biggest faller to date – burning up a reported US$800m in investment money in its aborted attempt to offer a coast to coast service in America – but a high percentage of other food sites may still have the lights on, even if there is hardly anyone at home as the investment dries up for dotcoms. Irish agribusiness group Fyffes also pulled the plug on its investment in IngredientsNet.com in Ireland this month, a site designed for commodity trading.
Cynics may well say this is the end of the dotcom boom, but a more reasoned approach would say that what we are seeing is the much-anticipated consolidation of the market.
The present crisis has been precipitated by the wild ambitions of 2000 and the inevitable collapse in the stock prices but it is not all bad news. Just this month, Foodtrader.com was reporting new business from China for the first time. Tesco has grabbed the chance to move into North America with a US$22m deal with counterpart Safeway Inc. The Waitrose model in the UK also looks solid and exportable.
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By GlobalDataThe problem for most pure dotcoms is simply that the money men are in a state of open panic. As one commented last week: “We just don’t know who to believe anymore. We don’t know what the model should be.” And transparently they overreached themselves.
The confusion is compounded by the lack of hard commercial evidence because most of the huge sums gobbled up by dotcoms has gone on technology rather than trading and so many projects have died before birth. Lastminute.com is supposedly burning cash at a rate of £15m (US$21.3m) a quarter and even a modestly professional web site now costs more than a house.
The one area of real and quantifiable growth is the travel sector where airline tickets and hotel bookings and other related areas like restaurants now account for nearly half of online spend according to the research group Forrester. This has an indirect impact on the foodservice sector and we can see a continued integration of what used to be called IT fusing with web-based projects. McDonald’s has put its payroll on the Net with consequent savings and improved efficiencies that are certainly going to be widely copied.
Gift and impulse purchases of gourmet purchases seem to be holding up. So too is recruitment where the Net can deliver a faster, more efficient and above all cheaper solution.
Food sites with solid home delivery functions that are not totally reliant on the Net are also reporting progress. Simplyorganic.net has been growing fast on the back of deals with Express Dairies for delivery in London. The Net is only one aspect of a more conventional organic retailer using both mail order and home delivery as its unique selling point.
The irony is that the clear-out – and we can expect more announcements of dotcom closures – is coming at a time when companies are starting to see the real benefits of the web. For food businesses, it is demonstrable that use of the Internet can save as much as 20% over conventional purchasing. For payroll procedures and similar the increased accuracy and speed are major pluses. We are starting to see new levels of information delivered in new ways that are informing the committed business user, as with just-food.com, for example. We are starting to see a new generation of marketing using couponing that links from the web to product packaging. And slowly companies are starting to recognise that the web is their one route to a global market. It represents extra business and need not cannibalise existing sales channels.
The lessons of the summer, though, are those that many food professionals will be familiar with – food is a massively complex and notoriously intransigent industry. The upstart dotcoms probably underestimated the difficulties of knowing their own marketplaces. They certainly underestimated the cost of the technology that soaked up most of their investment, all too often without delivering a viable end result.
Plainly what we are going to see in the coming months is this horrendous consolidation and very probably a new republic of a small number of larger players. Plainly a lot of the innovative ground breaking technology that may have been developed will be junked in favour of standardisation – and probably because liquidators will not really know the true value of the code they inherit.
But there is also a knowledge factor here. Early presumptions as to what the Internet might deliver in theory have not been fully validated,
“The incontestable Rule Number One of the Internet is that it is customer-driven” |
The incontestable Rule Number One of the Internet is that it is customer-driven. There may be 246 million people online at present, but it will take time before they start to recognise the real value of the Net in their business lives.
Companies should be grateful to the pioneers who are currently running out of cash – because they made the mistakes for them. Though whether anyone is going to want to bail them out is another question.
Obviously the early players in home delivery overreached their hand in a bid to dominate markets over which they held no influence. Equally, the surviving B2B platforms have learned that the biggest contribution they can make is not in trying to snatch markets away from existing players, but in working with them to build up viable e-marketplaces.
But the Net revolution has happened so quickly, that there is one other truism that is often overlooked. Nobody has as yet asked those 246 million surfers what they want from the Internet experience? And that is as true for the business user as for the casual AOL surfer, who is ultimately the same person anyway.
By Drew Smith, just-food.com correspondent
To view related research reports, please follow the links below:- B2B in the Food Industry: the e-revolution Online Grocery in the US 2001 – Profitability at the Virtual Checkout Innovators in E-commerce: Adapting best practice for the food industry to 2005 |
