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Fri, Nov 28, 2003 - Page 12 News List

Online food sales becoming profitable


Thanksgiving holiday or not, online food sales are up in the US: three years after the collapse of the much ballyhooed new economy, internet grocers have downscaled their earlier ambitions and are working closely with local customers to make profits.

Merchants have found that the recipe for profits is to keep small quantities of food in stock and deliver to a limited area. Success is still limited in this segment of online commerce, but analysts say it has a bright future.

"Huge amount of expenses were used to buy central fulfilment facilities" such as product storage platforms, said Patty Freeman Evans, a sales distrbution specialist at Jupiter Research.

After scores of bankruptcies of online companies after the internet bubble burst in 2000, today's virtual supermarkets must slash costs in hopes of becoming profitable, she said.

In New York, the emblematic representative of this new generation of distributors is called FreshDirect.

Founded in September last year, the company slowly built itself up around its Queens, New York headquarters.

The company, which began serving 20,000 area homes, now sells to 500,000 homes. Yet trucks carrying its distinctive green and orange logo can be seen distributing only in three of New York's five boroughs.

That way "you can offer freshest, best quality products at a better price," said FreshDirect founder Joe Fedele, who claims US$80 million of sales in the first year, and promises to show a profit next year.

On Wednesday, the day before Thanksgiving, FreshDirect had 1,400 turkeys prepared and ready to go with side dishes. Some 5,000 deliveries were scheduled for Wednesday -- a full 50 percent more than on an average day.

"We are considered as consumer interface, but we are producers," Fedele said.

Aside from Thanksgiving, every day of the year at FreshDirect "we cut meat, have it marinated, we make our own bread, our own cakes," said Fedele.

The company has 650 employees handling food and about 100 involved in deliveries, Fedele added.

This idea to target a market and procede with "a measured and slow growth" is "a smart approach," said Freeman Evans.

FreshDirect reproduces on a smaller scale, with improvements, what the giant supermarket chain Safeway is doing in the western US.

In California, Oregon and Washington states, customers can order online from Safeway.com. Safeway however can deliver only within a certain area close to their brick-and-mortar stores.

There are clear signs of a rising demand for online food shopping. In order to tap into the demand for holiday food sales, online trading giant Amazon.com last month began selling upscale grocery items on its US Web site.

Seafood and "baskets gifts" with chocolates and other delicacies are prominently featured.

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