NetGrocer, a delivery service that takes orders online, raised its prices quietly to try to stay afloat.
The company, founded in 1997, suffered a near-meltdown in 1998. In August, an initial public offering failed. On 30 October, shareholders ousted founder and CEO Daniel Nissan, and fired 80 percent of the 60 employees. NetGrocer also owed US$23.8 million to America Online, Yahoo, Excite, and iVillage in distribution deals. About $16 million of the debt was coming due in mid-1999, and the company was losing money on every box of goods it shipped.
So, in November, new CEO Fred Horowitz raised delivery rates by as much as tenfold.
Before the price hikes, NetGrocer was charging $2.99 for orders under $50, and $4.99 for all other orders. Under the new terms, an order under $60 costs $5.99 for East Coast customers and $13.99 for West Coasters. Orders of $500 or more now cost $33.99 in the East and $54.99 out West.
NetGrocer informed customers of the changes through its site. The old prices, it explained, were simply an introductory rate.
"They are royally ripping people off," said West Coast NetGrocer customer Kimberly Tracey. "NetGrocer provides you with dry goods. They do not send you frozen items or fresh meat or fresh fruits and vegetables. So why should those of us on the West Coast be charged these inflated delivery charges?"
Tracey also bridles at the explanation that the lower costs were only an introductory offer. "They had been charging that price for over a year. I would say that looks like a very long, drawn-out time for a 'promo' charge."
Horowitz said that customers were upset by the price changes, but he expects that the convenience of NetGrocer's service will eventually override any frustration because it is geared toward wealthier shoppers who consider time more valuable than money.
"If you're making anything more than six bucks an hour, this transaction makes sense from a personal view," Horowitz said. "An hour of free time a week is worth a lot of money for people."
Grocery delivery also appeals to people with limited mobility, like the elderly or disabled.
Horowitz said since the price increase, the number of customers has continued to increase, but he declined to provide specifics. Meanwhile, the company is trying to decrease costs by cutting distribution deals with manufacturers and wholesalers.
"As a small business we had no leverage on our suppliers," Horowitz said. "As the business has grown, we are able to get better deals from our suppliers."
Horowitz said the company still loses money on its shipping costs. He said no other price hikes in shipping are expected.
Since November, Horowitz has gotten out of some of the expensive traffic deals with the portals, and has postponed payment of some debt. The company doesn't have immediate plans to attempt another IPO.
But profitability remains a long way off, Horowitz said. The goal now is to win more customers, and win customers that don't mind spending the extra dollar.
