August 18, 1997

Shop, Don't Drop That's the message from Streamline, which combines the Web and refrigerators By Scott Leibs t's been about 225 years since a group of angry Bostonians touched off the American Revolution by combining tea with seawater. Now another group of Bostonians, the founders of a startup called Streamline Inc., hopes to touch off a revolution in E-commerce by combining refrigerators with the Internet. Streamline is backed by $10 million in venture funding and bolstered by a handful of high-profile partners that include cultural trend-spotter Faith Popcorn, chairman of BrainReserve, a consulting firm in New York. Streamline wants to capitalize on what Popcorn calls the "99 lives phenomenon," which is another way of saying that people are too busy to go to the store. In Streamline's vision, customers pay about $30 a month to sit at their PCs and order their weekly quota of bananas-the company's single most popular item-pasta, and dish detergent. They also use the PC to arrange for video rentals, dry cleaning, film processing, and numerous other services. "The consumer wants a horizontal range of products and services," says Timothy DeMello, Streamline's founder, chairman, and CEO. "We're giving people their time back, sparing them from having to drive to 10 different places to take care of 10 different errands." Streamline's customers can order at any time up until midnight of the day prior to a delivery. While those orders can also be faxed or phoned in, customers using the company's Web site have a completely different shopping experience-one Streamline hopes will surpass the in-store experience. To begin with, a customer's shopping list can be automatically populated with the items the family buys most often, right down to specific brands and sizes. Streamline accomplishes this b y sending a representative to the customer's kitchen to actually go through the cupboards and refrigerator with a bar-code reader, capturing data on everything the customer has. Then, when the customer wants more pretzels, for example, the system "knows" to buy the 12-ounce bag of Pepperidge Farm Pretzel Goldfish. One Streamline customer, Rob Levinson, says he "used to have shopping down to a science" and could get through a store quickly while keeping costs down. "But Streamline gives me back a lot of time, not only the time I spent shopping, but also going to the video store and the dry cleaners," he says. "And I'm not spending more." Behind Streamline's high-tech service is an updated version of the old-reliable refrigerator. Dubbed the Streamline Box, it's a 16-inch-deep storage unit built by General Electric. The Box, more than just a refrigerator, also includes a freezer section and a room-temperature section for storing dry goods. Placed in the customer's garage or basement, the Box lets Stream line send its trucks on their daily rounds even if the customer isn't home-no need to coordinate specific delivery times with customers' busy schedules. That's convenient for the customer, and for Streamline. The Streamline Box is not an option, it's a necessity. That not everyone has a garage or a basement to accommodate such a device doesn't bother Streamline. In general, those who don't have a garage or a basement probably won't become Streamline customers. "We're really aimed at the busy suburban family," DeMello says. "It's almost impossible for a single person to consume at a level that makes a profit possible." That's because a key driver for Streamline is gross profit per stop. According to this model, a family of four with a dog looks good. A single person or a couple-even in the high-income category-does not. Streamline wants customers that will spend $3,800 to $12,000 a year with the company, so it looks at household composition very carefully. For that reason, Streamline has not blank eted the media with advertising. Compared with competitors such as Peapod and Home Runs, Streamline has maintained a much lower profile, opting mostly for direct-mail campaigns in the communities where those "busy suburban families"-the company assiduously avoids the term upscale- tend to cluster. Word of mouth has emerged as the most important source of new business. Worldwide Chill Streamline's other key technology is the Internet. There's a certain irony in this, because Streamline didn't launch its Web site until May. Before that, customers either called or faxed in their orders. Even now, only about one-third of Streamline's roughly 450 customers order via the Internet. Competitors such as NetGrocer accept orders only over the Web. But DeMello says migration to the Web is so strong that he expects virtually all customer ordering to be handled that way by year's end. If so, that would let Streamline not only save money on customer-service personnel and fax paper, but also sell more products. The Web site can hold a list of favorite items for Mom, Dad, the kids, and even the family cat. And its DRO ("don't run out") function can make sure those favorites are always in the (virtual) shopping cart. The Web site ( www.getstreamlined.com ) can entice customers with a recipe and, if the customer likes it, make sure the order contains the ingredients. The site can also be directed to automatically remind customers to, for example, replace their toothbrushes every three months, something people often mean to do but forget about. The Web can also let Streamline play a potentially lucrative role as a grocery middleman. "We could sell products and services that don't have to go through our physical channel," DeMello says. "We could offer something on our Web site that, when ordered, is sent directly from the vendor to the customer." Streamline sees plenty of room for growth. First of all, everyone buys food, every week, and spends a lot of money doing so-an estimated $400 billion a year in the United States alone. The company points to studies showing that in seven to 10 years, the "consumer-direct" channel will account for as much as 12% of that, or as much as $80 billion in sales. Vendors such as florists and booksellers have found that a fair portion of the population is willing to order their goods over the Web and have them delivered to their homes or offices. Get consumers comfortable with ordering bananas and cereal over the Web, the theory goes, and you've pretty much opened the E-commerce floodgates about as wide as they can go. But how to open them remains a question. Companies peddling groceries via the Web are taking different approaches-not merely to differentiate themselves, but because no one really knows which business model will work. Market leader PeaPod, for example, has 35,000 customers in five cities paying a modest monthly fee plus a 5% surcharge on each grocery bill. PeaPod also derives what could become a significant revenue s tream by selling information about its customers' buying habits to food suppliers. Flour By Airmail Another competitor, NetGrocer in New York, hopes to win customers with low prices and no fees, but limits its offerings to dry goods, which it ships via Federal Express rather than create its own distribution network. Home Runs, a local player in the Boston market, competes with low prices, no fees, and a full range of groceries. Streamline may at some point take orders from customers for products and services that are supplied directly by other vendors. There would be a certain irony in that, given Streamline's heavy investment in its own distribution channel. The company has built a 56,000-square-foot prototypical distribution center in Westwood, Mass., with shelves stocked with about 10,000 different items (by comparison, the typical supermarket carries about 30,000). Color-coded bins are used to fulfill a customer's order, with frozen foods in one, refrigerated fo ods in another, and dry goods in a third. Streamline also has its own fleet of trucks, which will bring an order to a customer once a week. Streamline's Web site also presents vast amounts of nutritional information and, increasingly, a more sophisticated visual representation of products (see related story " Take A Look At What You'll Eat "). "The big breakthrough in E-commerce as it affects consumers is visual presentation," says DeMello. "It's a big part of what we're trying to do. That's what makes shopping efficient." To boost its visual presentation, Streamline has taken a novel approach to its information systems. While the company handles administrative functions with its own internal IS, its CIO is an outsider, an entrepren eur who continues to serve as CEO of his own company. He is Thomas Jones, president and CEO of Elm Square Technologies in Andover, Mass. Jones founded Epsilon, an early leader in consumer database marketing, then sold it to American Express. After a stint at Harvard Business School, he launched Elm Square, a software development firm that focuses on how consumers interact with technology. "Most companies getting involved in the Internet are moving up the scale," Jones says. "They're easing their way in from text-based models, and so far haven't made things very exciting." Jones argues that Streamline has an advantage. Elm Square, having developed technology for apps such as fully animated ordering kiosks in fast-food restaurants, simply has to wait for the electronic pipeline into the typical American home to become wide enough to handle its presentation. He adds that Streamline will be able to serve customers in whatever online mode they prefer. That's because Elm Square develops products for both W eb TV and Transphone-an Internet appliance that combines a telephone, keypad, screen, and magnetic card reader to simplify Internet access-as well as for the "traditional" Net environment. Streamline's future may have less to do with how its Internet site stacks up against its competitors than with its basic assumption that customers want a wide range of services. While the company says its buy-wholesale, sell-retail approach to groceries lets it price items competitively with most supermarkets, Streamline does impose a start-up fee of $39 and a monthly fee of $30. By comparison, most of its competitors charge lower fees, or none at all, and they focus on groceries. "We want to be priced 10% lower than the supermarkets," says Daniel Nissan, president of NetGrocer. "About 80% of American households can't afford a premium service like Streamline." Streamline's DeMello counters that niche services such as NetGrocer simply replicate the current retail environment, where customers must go to many stores to get what they want. "Why should E-commerce do that when there's a better way?" he asks. Still, some observers see other roadblocks confronting Streamline. "Grocery shopping is a habit developed over a lifetime," says Kate Delhagen, a senior analyst with Forrester Research in Cambridge, Mass., who follows E-commerce. "People are unlikely to do a 180-degree turn overnight. This will probably be a slow-building business." She may be right. Most businesses that offer groceries over the Web can count their customer base in the hundreds-or about the number of people who pass through a supermarket in a couple of hours. But with a range of companies to choose from, it remains to be seen what customers will shop for. For Streamline to make good on its plan to reach 200 regional sites in the next seven years, it must deliver on price, service, technology-and refrigerators. Back to News in Revie w Send Us Your Feedback Top of the Page

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