InformationWeek

October 16, 2000

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Ripe For The Picking

Fragmented sales channels present an opportunity for fresh-food marketplaces

continued...page 2 of 3

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GlobalFoodExchange.com is one of the more broadly ambitious sites, covering the perishable-food categories of meat, seafood, dairy, and produce. It cut its first deal last October and now has 1,600 members, a list that's been growing by more than 10% a week.

The heart of the operation is an Extensible Markup Language-based transaction engine--using an Oracle8i database, a BEA WebLogic application server, and a Netscape Web Server--that creates the company's "Open Pit" trading area and the "Trading Floor" for managing private one-to-one deals.

The Open Pit operates much like a stock market for food, where sellers can offer a commodity product and buyers can offer bids, says Christopher Swann, chief operating officer at GlobalFoodExchange.com. A matching engine written in Java aligns asking and bidding prices for each commodity. This fall, the company plans to add an auction.

Where's the incentive for buyers and sellers? GlobalFoodExchange.com charges 0.01% to 1% commission on each transaction compared with a 3% to 15% charge from food brokers, Swann says. Then there's the reduced paperwork and clerical errors, lower inventory, less food spoilage because it wasn't sold fast enough, and less staff time per deal.

Some major food dealers have started experimenting with the marketplaces. Bob Rich, director of pork procurement for Sherwood Food Distributors in Detroit, one of the largest privately owned wholesale distributors of meat and poultry in the United States, has bought or sold through at least three sites, including Agrabiz.com, FoodTrade.com, and FoodUSA.com.

Bob Rich Rich says the sites aren't replacing live sales calls but have opened up new sales contacts--he estimates half the people he has sold to via the Internet are new contacts.

"There's only so many people I can call in a day," Rich says. "The sites offer a pretty obvious advantage: one person on the phone vs. a thousand or so buyers on the Web site."

Sherwood Food buys fresh and frozen meat from packers such as Smithfield and distributes it to small retail operations that don't have enough credit or volume to buy from the big packers or to major retailers that need to fill short-term inventory gaps.

Rich says the sites so far are limited to just buying and selling frozen meats because the fresh packers that control a majority of the industry haven't partnered with these new trading exchanges.

The move of the largest meat companies such as IBP, Cargill, and Smithfield Foods to form an exchange repeats the pattern appearing in several other industries: Major companies have been coming together since this spring, creating independent marketplace companies that have not yet started moving significant volume. Such exchanges have also attracted the scrutiny of the U.S. Department of Justice over whether these electronic marketplaces run by industry leaders violate antitrust laws. So far, they've been able to clear that legal hurdle in concept, as shown by the Department of Justice's decision not to fight the Covisint exchange led by the Big Three automakers