Virtual Success: Wellness Promotes New Hope for Online Retail

While promoting his new book, “Conscious Capitalism” in New York last month, John Mackey, founder and co-CEO of Whole Foods Market, told an audience that the nation’s largest natural food chain is keeping a “close eye” on what FreshDirect is doing.

It was only a passing comment, but telling nonetheless. Of all the retail entities out there, Mackey chose an online operator that delivers healthy foods sourced from a range of natural, organic and sustainable producers right to the front doorsteps of hungry subscribers.

Many retailers understand, and know exactly what’s piquing Mackey’s interest. There’s evidence everywhere. The number of online retailers selling natural, organic, local and artisan foods and beverages is growing. Several of them have just recently received infusions of fresh capital to help them grow further. They are moving to larger offices and adding staff, as well as customer territory. There’s even talk now of Whole Foods itself getting into the online and home-delivery business.

What was not too long ago an outlet for hardcore lifestyle consumers looking for little-known products has reached a threshold that brings it into the orbit of natural food retailers, farmers’ markets, CSAs — and mainstream supermarkets.

Up, Up, Away

The recent growth spurt in the online retail sector specializing in health, wellness and sustainability can be traced to an improving economy. Investors looking for fresh opportunity are handing over their capital to sites that were founded when wellness was just appearing on the radar of American consumers in the 1990s and early 2000s, and had proven staying power by surviving the crushing 2008 recession.

Among the beneficiaries is Door to Door Organics, which received a $2 million buy-in from Greenmont Capital last August. Last month, natural emporium Abe’s Market landed $5 million in funding led by Israeli venture capital firm Carmel Ventures. Richard Demb, co-founder and CEO of Chicago-based Abe’s, said the new money is a sign the financial community knows where the future of food retailing lies. Just follow the shopper.

“Our customer base is now not just a lot of new people but an increasing number of people buying three or four times within a few months,” he said. “So we’re starting to see a jump in frequency.”

The upswing in repeat customers is what tells Demb his site of 12,000 food and nonfood SKUs resonates with consumers. But it’s a never-ending process. Abe’s continually hones its selection and looks for ways to improve its interface.

“We attract an informed shopper who takes a little more time in what they buy and cares about themselves and their families,” said Demb. “That shopper is doing some stocking up at an Albertsons or Shaw’s, but they’re also hitting a co-op, a Trader Joe’s and a Whole Foods along the way.”

Online retailing’s ability to squeeze into that line-up of multiple shopping destinations has been key to its success so far. In an era when more venues than ever are offering food, consumers seem eager to consolidate trips. They’re turning to online retailers for certain products as a convenience, notes Sucharita Mulpuru, vice president and principal analyst at Forrester Research.

“It’s a pain to have to go to all these local merchants,” she said. “If you have the ability to have one order delivered to you, that makes sense.”

Convenience is very much an ingredient in the recipe that propelled e-commerce to sales of $226 billion in 2012, according to Mulpuru, a number that will likely hit $327 billion by 2016, representing 9% of total retail sales. But for all the success, most of the goods sold online are electronics, apparel and toys. The regular purchase of food is something most Americans still do in a store.

“I’ve always described food as the last great frontier in e-commerce,” said Chad Arnold, president and CEO of Door to Door Organics, an online home delivery service based in Lafayette, Colo. “There’s no other $800-billion-dollar industry that e-commerce hasn’t touched yet.”

There have been some false starts and outright failures, but the barriers keeping more consumers from food shopping online are falling away as companies get better at crunching data to improve the customer experience.

“We’ve got different kinds of models out there, and experimentation, and that’s always healthy, because we’re always learning,” observed Nancy Childs, a professor of food marketing at St. Joseph’s University. “And the consumer has more votes in terms of what’s meeting their needs.”

Interaction — that critical component of any retail sale — is being transformed by online retailers. Many analysts cite Amazon, which has been consistently ranked No. 1 in customer service. Some wellness outlets are gaining traction in this area, too.

Vitacost, one of the largest online sellers of health and wellness products with 40,000 SKUs, garnered its own award when customer analytics firm ForeSee ranked the company behind only Amazon and L.L. Bean for customer satisfaction during the 2012 holidays. The site heavily promotes its large selection and prices that are up to 50% off retail.

“All of our customers, like all consumers, are very interested in value,” said David Zucker, the retailer’s chief marketing officer. “We believe all of them understand that we offer great products at great prices, and that’s a very valuable proposition — to be able to offer customers brands they’re comfortable with at competitive prices.”

Value is another component that online retail has been able to highlight, even as it redefines the word in the process. At Door to Door Organics, value is found in the carefully curated selection of organic produce, meat, dairy and grocery.

“We’ve stepped back from trying to rebuild the grocery store online,” said Arnold. “We’re thinking more about the fundamentals of the transaction, and building a shopper experience that’s based on the nature of the problem, not on the existing solutions.”

In other words, today’s online food purveyors are teaching people to purchase food by the way they think about food — a recipe or a meal or a lifestyle. It’s no longer about the product.

“In fact, I would argue that the product is an artifact of the retail grocery environment,” added Arnold, whose company just opened on the East Coast serving the lucrative New York-Philadelphia corridor.