Pressroom - Online Food Sales Are Hot Again

In most cases, it is members of the old order that are succeeding in the online food business. Gourmet mail-order companies, for instance, are using the Internet as a simple extension of their current businesses -- like phone and fax ordering -- which may explain why catalogers are the most profitable Internet merchants, according to Shop.org, the Internet retail arm of the National Retail Federation. Some supermarkets, meanwhile, offer home delivery and Internet ordering as options for customers.

For some mail-order companies, the Web has invigorated their businesses, quickly displacing phone orders. In September 2002, Cheesecake Factory Inc., a Calabasas Hills, Calif., restaurant-chain operator, started taking Web orders for its desserts, like its $54.95 chocolate tuxedo cream cheesecake. Less than a year later, sales through the company's mail-order division have doubled, with the Web site accounting for 70% of orders and the rest coming in over the phone. The Cheesecake Factory, which doesn't disclose online-sales figures, has done little more than promote the Web site's address on restaurant doggy bags.

The Cheesecake Factory has an incentive to encourage the change: Web orders are more profitable for the company. "It costs us more for somebody to call the 800 number because you have a live body there," says Howard Gordon, the company's senior vice president, business development and marketing.

Likewise, Omaha Steaks Inc., a Nebraska mail-order company and store operator, says Web orders are the fastest-growing portion of its business, and it believes the Internet will eventually surpass its 800-number business. Like many other Web food stores, the company prevents spoilage by freezing its products until they're rock solid, then packing them in foam containers filled with dry ice. The items are usually still frozen when they arrive in the mail.

Merchants say online users are overcoming early suspicions about the freshness of Web food purchases. "People have definitely gotten more comfortable with the psychology of not having to touch food to buy it," says Dan Cunningham, the owner of Dan's Chocolates, a profitable Internet-only purveyor of truffles and other sweets in Randolph, Mass.

"If it's a catalog-based business, it's certainly true that within three or four years most of their business will be online," says Carrie Johnson, a senior retail analyst at Forrester Research.

Some analysts even see new life on Webvan's old turf -- Internet grocery delivery. Safeway Inc., Albertsons Inc. and other grocers are filling orders from their supermarket shelves, minimizing the need to build new facilities or to dispatch delivery trucks on long commutes from out-of-the-way warehouses -- two factors that hurt Webvan. Peapod, an early Internet grocer, survives under the ownership of Dutch supermarket giant Ahold NV. It says it is showing operating profits in four of the five regions where it provides its service.

But some Web-only grocers still believe they can succeed where Webvan failed by keeping a lid on costs. FreshDirect Inc. in New York City has almost 100,000 customers in Manhattan for its Web grocery service, which promises meat and vegetables that are fresher than the items pawed over in ordinary supermarkets. The company tries to minimize the inventory on its shelves and the waste on the cutting-room floor: For instance, FreshDirect carves up beef and fish based on orders flowing in from customers, much as Dell Computer Corp. slaps together PCs to the specifications of Web or phone customers.

FreshDirect ferries orders to customers using a fleet of trucks, charging a $3.95 flat delivery fee. In the next several months, the grocer plans to start shipping gourmet food, like caviar, meat and cheese, to customers across the country through the mail. FreshDirect President Jason Ackerman sees the Internet as a fairly unglamorous order-taking medium that isn't as important as the company's innovations in other areas of the business.

"The vast majority of what we spent our money on was completely reconstructing the processing of food," Mr. Ackerman says. "The Internet was just an enabler of what we could do on the back end of the business."