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October 16, 2000 |
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Ripe For The Picking
Fragmented sales channels present an opportunity for fresh-food marketplaces
By Charles Waltner
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new wave of business-to-business Web marketplaces is trying to put the wholesale perishable-foods industry on a much-needed diet. In a fragmented industry heavily dependent on person-to-person selling by phone and fax, these sites offer the potential of cutting transaction costs from supply chains for everything from beef and chicken to seafood and produce.Most of the few dozen trading and information Web sites for the perishable-food industry have started up in the last 12 months, and they appear far from attracting the kind of critical mass of volume they need to truly change the industry--or make money.
But the landscape is changing quickly. Jon Ekoniak, an analyst at U.S. Bancorp Piper Jaffray, says he sees more online marketplaces starting up in the food industry than in just about any other industry. The reason for this rapid growth is the inefficiency in food brokers' supply chains. For example, brokers can make sales calls for a single order. "There's a lot of fat out there that these sites can trim," Ekoniak says.
The sites' approach to the market varies greatly: Some of them use an open auction format, while others provide areas where members can negotiate deals privately via E-mail. Some sites are working to accommodate a variety of transaction formats, including auctions, exchanges, and bulletin boards that allow for the wide variety of selling scenarios in the perishable-food industry. Some are incorporating information on weather, crop yield, harvest data, and government regulations.
The basic goal is similar to other Internet-based marketplaces that have sprung up in industries ranging from plastics to antiques: to lower the cost of selling their inventory and to broaden the reach of buyers and sellers to ensure that items sell for the best price more quickly.
Yet the food industry faces some major obstacles. Not that there isn't money in the business: Seafood alone is estimated to be a $350 billion annual global market, while a rough estimate for the meat industry--including beef, pork, chicken, and lamb--is $250 billion.
But the industry is highly fragmented. Though the meat industries are generally dominated by a few large processors and distributors, the rest of the wholesale perishable-food supply chain is split among hundreds of different types of foods, suppliers, and buyers, with intermediary brokers for each. That means there's opportunity for efficiency, but it will be more difficult to collect a lot of volume into a single marketplace. "The food industry is very fertile ground for business-to-business exchanges," says Bruce Klassen, a VP with research firm A.T. Kearney.
The opportunity isn't lost on the largest industry participants. Several of those companies--Cargill, Farmland Industries, Gold Kist, IBP, Smithfield Foods, and Tyson Foods--are creating their own marketplace and have committed a total of $20 million to the venture. Also, another company, formed through the McDonald's Corp. subsidiary eMac Digital, will bring Cargill, McDonald's, Sysco, and Tyson to market food and services to the food-service industry.
Tom Erdmann, a managing director of the eVentures Group for Cargill, says selling one shipment of product, such as a crate of frozen pork chops, typically requires five or six phone calls, up to a dozen invoices, and two or three faxes. Multiply that paper shuffling and phone work by the millions of shipments that take place every year in the food industry and the value of digitizing such transactions adds up fast.
Because there aren't any clear leaders yet, analysts cite a long list of sites with the potential to gain ground among business-to-business food marketplaces, including FoodUSA.com, GlobalFoodExchange.com, Gofish.com, Instill, ProduceOnline.com, and SellMeat.com.
Photograph of Mike Laddon by Edward Carreon
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