It’s an open secret in retail that the grocery business is probably the largest market yet left untapped by online retailers. Use of online shopping in grocery is growing but it is still at a remarkably low rate, probably under 7%. Grocery stores are visited by a member of almost every household in America once a week or more. It’s shocking that retailers have failed to devise a path to success for such a critical and large industry.
In a previous blog I wrote about why that’s happening. One of the key reasons is price. So far it’s been impossible for retailers to compete with physical grocery stores in such an intensely competitive business and still support the cost of picking and delivering customer orders to consumers’ homes and make a profit. The second reason is perishables. Consumers like to select their own fruits, vegetables, meat and fish and don’t want to get the bruised apples from the bottom of the barrel. Those have been very hard obstacles for retailers to overcome and until now, no one has done it and made money.
For the last several months I’ve been talking to an Asian-based online grocer that may have the answer. The company is called Open Taste. They started by selling only fruits and vegetables and have since expanded to also offer dairy, meat, seafood and some grocery items. Two things make Open Taste unique:
- Their prices are better than most supermarkets.
- They make money (I can’t tell you how much but I have seen their financials).
It is those two factors that make Open Taste interesting, valuable and one-of-a-kind. No one else, including Amazon, Whole Foods, Kroger, Walmart, you name it — has been able to do that online.
How does Open Taste do it?
There are several components to Open Taste’s low-cost strategy. The first is sourcing. Open Taste sources product direct from producers. It has direct arrangements with farms in Asia, the US, Europe and Australia. That direct connection eliminates brokers and distributors and reduces waste. Open Taste estimates that in conventional supply channels about 35 cents of every produce dollar goes for those three items. Open Taste has eliminated almost all of those costs.
The second component of Open Taste’s strategy is delivery. Their entire philosophy is based on low asset investment. They own no trucks or delivery vehicles. They use crowdsourced drivers (think Uber) who can make six deliveries per hour over six hours a day or 36 deliveries per driver per day. They have their own thermal bags which keep cold things cold and cool things cool. The bags also incentivize repeat customers because each bag has a deposit cost.
Open Taste also chooses its customers carefully. They don’t service every possible customer, they are focused for now on consumers in high-density locations because that makes delivery more efficient. Asian cities typically have more density so starting in Singapore made sense as a place to begin.
The next step for Open Taste is bulk delivery. The idea is to get consumers to buy more produce than one household typically needs at one time. That saves money on handling and shipping costs which makes the business even more profitable and low-cost to consumers. It causes neighbors to share orders with each other and the breaking down of the bulk order shifts the labor cost from the food retailer to the consumer with consumers benefiting from the cost savings. The key is having neighbors who live near each other work together to maximize convenience.
I can’t say where this will lead except that Open Taste is clearly on to something. They have cracked a code that no one else has been able to do, including companies with billions of times more sales and resources. They’ve done it by rethinking how goods move and how to leverage other people’s assets without owning them. They are maximizing efficiency with no store, very little capital, concentrated focus and not a little entrepreneurial derring-do. If you’re a big company, your orientation is always to try and figure out how to maximize the enormous resources you control to build a business. But in an economy where brainpower is the most valuable asset, scale and creativity don’t always work together. When you look at Open Taste you can’t help but think that if a little startup can do better on the bottom line than anyone else in the industry, then it’s possible to believe that penetration in online grocery is as open to entrepreneurs as it is to the giants. We may be seeing one of the world’s biggest businesses turned on its head.