Outlook. With $5 million in the bank, four freshly paintedtrucks, and a warehouse full of goods, DeMello is ready to deliver.By the end of the year, he expects Streamline to have 350customers--4,000 by mid-1997. "We want to build the company slowlyand make sure we get all the kinks out," says the founder. "We don'thave to start making a profit right away." For DeMello, the conceptof home delivery goes beyond groceries, movie rentals, and drycleaning. He envisions a company able to sell many products andservices into the home--plane or theater tickets, lawn care orupholstery cleaning.
To show potential customers (or skeptics) how Streamline's servicemight ultimately work, DeMello has constructed a fully functional,three-room house in the middle of his warehouse. Painted in the lightblue and bright yellow company colors, the model allows visitors toorder groceries from a handheld computer in the kitchen or to pickout a movie from the PC in the living room. DeMello maintains hispersonal office in the model--in the garage, of course.
Financials (projected)
|
1996
|
1997
|
1998
|
|
Revenues
|
$1,107,187
|
$10,426,550
|
$49,697,367
|
|
Cost of Goods Sold
|
$405,444
|
$6,648,480
|
$33,244,500
|
|
Operating Expenses
|
$1,600,000
|
$4,200,000
|
$9,442,500
|
|
Operating Profit (Loss)
|
($898,257)
|
($421,930)
|
$7,010,367
|
|
Number of Warehouses
|
1
|
3
|
7
|
|
Number of Customers
|
350
|
4,228
|
14,300
|
|
Streamline Versus Supermarkets: More Net Per Revenue Dollar
|
|
TYPICAL SUPERMARKET*
|
STREAMLINE
|
Cost of Goods Sold
|
$.75
|
$.72
|
Operating Costs
|
$.17
|
$.13
|
Distribution
|
$.04
|
$.06
|
Corporate Overhead
|
$.03
|
$.03
|
Net Profit
|
$.01
|
$.06
|
*Figures compiled by Smart Store, a research-and-development initiative at Andersen Consulting.
|
Feedback
What the Experts Say
Reality check: Is a weekly delivery enough?
Some say no. Kevin Sheehan of Shopping Alternatives Inc.(SAI) says his company offers customers multiple delivery windowseach day because shoppers want and need the flexibility: "Streamlinehas a rigorously planned delivery schedule. That's great for it butnot always the best thing for the consumer." With only one deliveryday a week, Sheehan suggests, Streamline's customers may find thosequick trips to the minimart adding up.
Will consumers give drivers access to their garage or basement?
DeMello insists that it's not a problem, arguing that of his 60 orso test customers, only one has raised the security issue. But Raymond Burke, the E.W. Kelley Professor of BusinessAdministration at Indiana University in Bloomington and aconsumer-behavior expert, sees it as one more hurdle to enrolling anew customer. Sheehan says SAI explored but rejected the concept. "Wefound that customers like to be at home when the groceries arrive sothat they can go through the bags."
What do food buyers really want?
Streamline offers convenience, but that's not the firstcharacteristic grocery shoppers look for. Research conducted by the Food Marketing Institute (FMI), based in Washington, D.C.,reveals that consumers choose one supermarket over another primarilyon the basis of the relative quality of its meats and produce. Peoplewill go out of their way to buy freshness. Burke contends thatStreamline's toughest task will be to build brand identity andconsumer trust. "The advantage for companies like Peapod is that theyare working off a well-known and trusted supermarket brand name," heexplains. "On the other hand, while it might be harder for a companylike Streamline to gain acceptance initially, the potential for astrong customer bond exists."
Can DeMello bring the model to scale?
Robert Lieb, an expert in logistics and the Walsh ResearchProfessor at Northeastern Business School, points out that theconcept of secured delivery isn't anything new. "We've seen this sortof thing in the industrial sector for some time, and it's a modelthat works," he says. Even SAI's Sheehan admires DeMello'sdedicated-warehouse concept. "But it's a model that requires asignificant volume to create profitability," he says. Others concur."The major barrier to this business is route density," explains H. Perry Boyle Jr., principal and securityanalyst in the business-service area for Alex. Brown & Sons, inBaltimore, Md. "Offering other products and services is great becauseit increases the average order size and gross margins. But if eachroute has only a limited number of customers, it becomes hard to makemoney."
