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A Trip to the Grocer-E
by Andrew Haeg
February 14, 2000
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Some Twin Cities residents can now buy groceries over the Internet, thanks to a new company called SimonDelivers. The company says it's signing people up at a fast pace, but it's also experiencing growing pains that illustrate why the online grocery business is so tough.

CAROL SAUNDERS IS the mother of two-year-old triplets. She also works part time, and like many busy parents, could do without the weekly trip to the supermarket.
Saunders: You couldn't find anyone who hated the grocery store more.
Last April, she stopped going altogether. Instead, every Wednesday, she logs onto SimonDelivers' Web site from her home computer. She browses through descriptions of groceries, clicks on what she wants, then makes her order. Her entire shopping trip now takes as little as 10 minutes.

The next day around 5:30 p.m., delivery man Brian Sherman arrives at her Edina home, laden with tubs full of pizza, milk and graham crackers.
Sherman: You gonna eat 'em all up this week, am I going to have to bring more next week too?
The company started delivering groceries last April. That was a year and a half after Simon Foster, a 38-year-old Briton, began raising funds from private investors. Now he's CEO of the Twin Cities first online grocery delivery service.

At last check, SimonDelivers had 3,000 regular customers. And Foster says the number is growing upwards of 10 percent a week. Managing that kind of growth, he says, is like trying to hit a moving target.
Foster: The hardest thing is trying to aim where the duck will be, because every time you try to aim where the duck is now, it's too late.
And sometimes you miss. Foster says 10 to 15 percent of a recent week's orders got lost in the shuffle. That's because his computer system couldn't handle the growing volume.

But success for SimonDelivers hinges on more than technology. In fact, much of the company's back-office operations seem surprisingly low tech. About 40 workers dash about a warehouse in New Hope, picking groceries from open shelves and refrigerated rooms. Then they pack them into tubs and load the tubs into one of eight delivery vans.

Drivers then fan out across Minneapolis and its suburbs. If all goes according to plan, by this summer, they'll also be serving St. Paul and the rest of the Twin Cities.

Foster says the key to success is the Internet. He says it helps him manage the supply chain from food wholesalers to consumer. He says that's freed him to focus on the customer.
Foster: What the Internet has afforded us, and what our model lets us do, is to inject good old-fashioned customer service back into the equation without compromising on the three things that grocery stores have delivered us, which are, quite frankly, huge selection, generally very good quality and low cost.
Foster says someday he plans to offer his service in other cities. He won't be alone. Several companies like Illinois-based Webvan, and Peapod in San Francisco are spending heavily to build online grocery businesses.

Jupiter Communications estimates that nationally online grocers will sell $6.4 billion worth of groceries by 2002. That's a lot of money, but still only one percent of the total market by that time. Still, it doesn't appear any online grocer has turned a profit. Webvan said it lost some $49 million in its fourth quarter; Peapod, more than $5 million. George Dahlman covers online grocers for U.S. Bancorp Piper Jaffray.
Dahlman: I don't think any of these companies have come up with the way to profitably deliver groceries to the consumer, and so the answer hasn't been achieved yet.
Simon Foster isn't saying how much he's losing; as the head of a private company he doesn't have to. Foster will have to hope his backers stick around until he proves that Simon can deliver.