InformationWeek

October 16, 2000

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Ripe For The Picking

Fragmented sales channels present an opportunity for fresh-food marketplaces

continued...page 3 of 3

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The threat of competition from the largest companies hasn't scared away the independent electronic trading sites from trying to gain a foothold in the fragmented food industry. Rob Chestnut, chief operating officer of the Kansas City, Mo., beef and poultry site SellMeat.com, says that a site can succeed without completely dominating the market. "It's a very big pond," he says.

Roddy Martin, a research director with AMR Research, predicts that three-quarters of all U.S. wholesale food sales will go through electronic trading exchanges within the next two years. That will require a jarring change from today's system of cold calls and live interaction with customers--but Martin says the potential savings will force through the difficult change. For example, rather than holding an inventory of frozen chicken meat until a buyer is found, a company could quickly find a buyer through one of the sites and send it out for delivery without ever putting it in storage. "Information now replaces inventory," Martin says.

Startup exchanges are still waiting for the flood of demand. ProduceOnline.com was launched more than a year ago in a garage in Pasadena, Calif., by its founders Chuck James and Ken Johnson and now has 30 employees. About 80 member companies are buying and selling produce on the site, averaging $50,000 to $100,000 a week in transactions, says Mike Laddon, the company's VP and chief strategy officer.

Laddon says the fresh-food industry in particular needs companies such as his because it's fragmented and the commodities are difficult to manage. Lettuce and oranges don't come with a stock-keeping number attached, and any one buyer, such as a grocery-store chain, often needs to get the same item from dozens of sources; in comparison, boxes of Oreos, for example, come neatly packaged and numbered from a single source. "There's just a heck of a lot of guys out there growing fruits and vegetables," Laddon says.

The biggest barrier to the adoption of these sites seems to be more human than technological. The food industry is layered with small businesses such as producers, brokers, and wholesalers that are wedded to personal relationships and aren't technology-savvy.

Rich at Sherwood Foods is clearly an early adopter, even in his large company. He has encouraged co-workers to try out these new sites for their meat product lines, but he's run into resistance from salespeople who are uncomfortable straying from the tried-and-true phone and fax.

"It's tough to retrain an old horse," Rich says. "Some of the people in the industry don't even want to turn on a computer." On the other hand, there have already been some signs of consolidation among food marketplaces. This summer, two Seattle seafood marketplaces, WorldCatch and Fishmonger, agreed to merge to create a market with 4,000 registered users. Fishmonger had developed strong online content around the industry but had lagged far behind WorldCatch in transactions.

Denny Thornton, sales manager for fresh poultry at Keystone Foods in Philadelphia, has become convinced by his experience that marketplaces will thrive. Thornton, whose company sells processed chicken parts for fast-food restaurants such as McDonald's, has used GlobalFoodExchange.com a few times to sell excess inventory. He found that prices were comparable to those of conventional sales channels--but he didn't have to call 20 to 25 brokers in a market that's flooded with a supply of chicken meat.

Given the volume of inventory that buyers and sellers try to move every day, Thornton has no doubt that at least some exchanges will succeed. "As long as people keep killing chickens," he says, "there will be a need for this."