When Winder Farms CEO Mike Dutton first started tapping private equity firms for cash to support his online grocery shopping business, memories of Webvan (which went bankrupt in 2001) were still fresh, and more than a few doors were slammed in his face before he managed to convince them that you can make money selling food online.
Today, says Dutton, attitudes in venture capital firms have changed as operators such as Utah-based Winder Farms - which is growing rapidly and profitably - have proved that if you get the business model right, they will see a return on their investment.
The key to Winder Farms’ success, he says, is focusing on fresh local food (what you’d expect to see at a farmer’s market: produce, dairy, bakery, meat, and fresh prepared meals); building “incredible customer density” in target (more affluent) neighborhoods; and engaging with customers to earn their loyalty.
We’re not trying to replace the grocery store
The firm - which started life as a dairy delivery business - made its transition to the ‘farmers market on wheels’ model about 10 years ago, and makes weekly deliveries of groceries picked from its warehouses to homes in Utah, Southern Nevada and Southern California.
Shoppers place their weekly order - which can be changed up until 8pm the night before the scheduled delivery day - and their items are delivered to their homes before 8am.
Most customers spend at least $25-30 and several spend well over $100 says Dutton, who says online grocery shopping businesses “never failed because of lack of consumer demand”, but because the business model wasn’t right.
The percentage of people buying groceries online is absolutely going to grow
If you want to replicate the offer in regular grocery stores and promise to deliver low ticket, packaged grocery items to people whenever and wherever they want, you need very deep pockets, he says.
“This is not our value proposition. There are lots of places for consumers to buy canned, packaged and processed foods, but what we offer is fresh, local food delivered once a week.
"We’re not trying to replace the grocery store, we recognize that people shop at lots of different places for different things and we want to be added to the mix.”
Meanwhile, the experience of getting a box of premium fresh foods, or local seasonal produce - where you might get something a little different each time - is not the same as getting toilet rolls and canned soup, he says.
“We have a lot of interaction with customers. They tell us what they think on Facebook, and about a third of them log onto the site every week to refresh their order after we send them a reminder; they don’t all order exactly the same each week.”
We’re five times larger than we were five years ago
And while the overall percentage of people that buy groceries online today is still very small, he acknowledges, “that percentage is absolutely going to grow. Look at every other category [of consumer products]. There is no reason to think that grocery will be any different.”
In other words, says Dutton, while some shoppers say they want to touch and feel food before they buy it, once they see that the quality is consistently good, they will give you the benefit of the doubt.
They also trust what their friends and neighbors say, evidenced by the fact that a large chunk of business at Winder Farms comes from referrals, he points out.
You have to get the density on delivery routes to make it work
However, there are barriers to entry for new players, he says, and it’s taken some years to hone the business model at Winder Farms, he says.
“You have to get the density on delivery routes to make it work, and you need a lot of capex, but we think we have got the model right now.
"We’re five times larger than we were five years ago and in the next five years hopefully we’ll be five times larger again.”
Unlike food retailers that are trying to extend their offer online, Winder Farms is completely optimized for home deliveries, he says, and picks orders from warehouses optimized for rapidly fulfilling individual customer orders.
In contrast, established grocery retailers typically pick online orders from their stores (which are not designed for this purpose), or existing warehouses (which are designed for supplying stores, not individual customer orders), and have struggled to adapt their business models, he says.
Click HERE to visit the Winder Farms site.