Online Grocer Fails to Deliver the Goods
Four years after profiling Streamline.com in its Anatomy of a Start-Up series in November 1996, Inc. magazine checked back in to find the company defunct due to its poorly conceived e-commerce model. Here's a brief overview of what went wrong.
Formerly: Streamline Inc.
Founder: Tim DeMello
Vital signs then: DeMello started a Massachusetts-based service that provided home delivery of groceries and picked up and dropped off movie rentals, dry cleaning, and film. Each customer paid $30 a month for Streamline to deliver groceries weekly and stock them in a box (consisting of a freezer, a refrigerator, and a few open shelves) located in the customer's basement or garage. In contrast to services like Peapod Inc. that set up partnerships with local grocery stores, Streamline operated its own warehouse. DeMello, with $5 million in the bank, projected revenues of $1.1 million for 1996 and nearly $50 million for 1998.
What the experts said: Although one was enthusiastic about the potential for market acceptance, he warned that some customers might find the once-a-week delivery too infrequent. Another expert suggested that at-home grocery shoppers usually liked to be around when the bags arrived, so they could inspect the contents. Finally, noted a third observer, if DeMello couldn't convince a large number of shoppers in enough cities they needed his services, profits would be pint-sized.
Vital signs now: After the original Anatomy article appeared, Web shopping exploded, and Streamline decided to capitalize on the trend by adding the dot-com suffix before it went public, in June 1999. Pricing the offering at $10 a share, Streamline raised $45 million. But for the six months ending July 1, 2000, it lost $23 million, and its stock price dropped to less than $3. In September, Peapod, a Streamline competitor, acquired the ailing company's Washington, D.C., and Chicago assets for about $12 million in cash. It also agreed to assume Streamline's lease obligations in those locations. In November, Streamline announced it was discontinuing its service.
What the experts say today: "The online grocery model is very expensive to start up and maintain," says Ken Cassar, a senior analyst at Jupiter Research in New York City. Cassar notes that distributing perishables and nonperishables costs non-brick-and-mortar grocers a pretty penny. "And add to that Streamline's refrigerator-in-a-garage model, and it becomes a more daunting model," he says. Then there's the tomato problem. "People tend to be rather particular about their tomatoes and other produce items. It takes a big leap of faith to allow someone else to pick your tomatoes," Cassar says.
As reported by Anne Marie Borrego.
Copyright © 2001 G+J USA Publishing