BC Business
Online Grocery Delivery | BCBusinessThe timing for online grocery shopping looks right, given the advent of tablets and smartphones as well as a nearly 100-per-cent urban penetration of broadband Internet.
After a false start, online grocery shopping finally comes of age.
Terry Drayton had impeccable timing. And then he didn’t. In the summer of 1996, the Canadian entrepreneur and co-founder of bottled water company Crystal Springs decided that online home grocery delivery made a lot of sense. With three other Vancouver co-founders, he started HomeGrocer.com – back when we were all using 28.8K modems and marvelling at this new thing called the Internet. Just after Morgan Stanley analyst Mary Meeker’s famous call that the Internet would fundamentally change business, he went looking for VC funding in Seattle. Tom Alberg (now with Madrona Venture Group) made a $4-million investment, and six months later HomeGrocer raised $52.5 million in an investor frenzy that included Kleiner Perkins Caulfield & Byers and Amazon.com. Then HomeGrocer went public in 1999.
That was the good timing. The bad timing was that people were not yet ready for online grocery shopping, despite the $440 million that HomeGrocer dumped into advertising, trucks and personnel, only to file for bankruptcy after merging with competitor Webvan. At that point, it had burned through a combined $1.2 billion. What happened? The lack of broadband made it hard for people to see the food images, place a long order and pay for the goods. Plus, the Internet population was predominantly men more interested in modems than groceries, and in the late ’90s most people just didn’t trust others choosing their fruit and vegetables.
Around the same time that HomeGrocer was pouring gasoline on its mountain of cash, a small business started delivering local produce to Vancouverites. It was called SPUD (which at that time stood for Small Potatoes Urban Delivery) and it clunked along, slowly building a base of loyal customers without being too flashy online and without raising a ton of money. In 2008, it bought a Seattle competitor with operations in Portland and San Francisco, and the wheels came off. Enter the current CEO, a brand marketer extraordinaire named Peter van Stolk and his management team, who bought into the company in 2010 and spent their money getting things running smoothly on the West Coast. They opened in Calgary as well and the company grew very quickly, based on the new operating systems and inexpensive marketing that the new SPUD (now known as Sustainable Produce Urban Delivery Inc.) was deploying. Most importantly, the new SPUD offered local organic produce and meats as well as dry goods, allowing consumers choices right up to the afternoon before their weekly delivery.
Today, online grocery delivery is a hot business across North America, with several companies securing recent funding from VCs (who have learned a few lessons: investments average a mere $3 million to $7 million, and profitability is high on the list of criteria).
Peter van Stolk is a master of making an emotional connection to a brand; he’s the founder and CEO of Jones Soda, the Vancouver company known for putting people’s own photos on bottle labels. For van Stolk, the timing for online grocery shopping looks right, given the advent of tablets and smartphones as well as a nearly 100-per-cent urban penetration of broadband Internet. The online shopping experience is no longer a barrier. And to those who said it would be tough to buy produce online if customers couldn’t touch it, well, they said the same thing about shoes, and Zappos, which started out selling shoes online, was bought by Amazon.com for $1.2 billion in 2009.
Terry Drayton had great timing raising money for online grocery delivery, but poor timing on the market opportunity. Peter van Stolk looks like he has hit the timing perfectly in terms of the preponderance of organic choices and the education of the marketplace about local and sustainable food, and that online grocery delivery is now a much easier sell. I have to say, I like SPUD’s chances.