SimonDelivers News of Demise

JON SPRINGER

MINNEAPOLIS — SimonDelivers, the Internet grocer here that survived the dot-com bust, succumbed last week to rising gasoline costs and changing consumer habits in a weakening economy.

The nine-year-old company, which reportedly generated about $55 million in annual sales while delivering to 19,000 customers around the Twin Cities, said it would continue to fulfill customer orders only while its current supplies lasted. “We made a promise to provide you with a great website, great products and most importantly great service,” the company said in a statement. “We are sad we cannot continue to fulfill that promise.”

Liwanag Ojala, who was named chief executive officer of SimonDelivers in 2006, was unavailable for further comment.

Simon Fuller, the company's namesake, founder and former chairman and CEO, told SN in an interview last week that rising costs for gas and commodities, along with slowing sales as the result of customers seeking less expensive shopping options, were the main culprits in SimonDelivers' demise. Competition — not only from grocers that developed home shopping options like Lunds/Byerly's, but also from a boom in low-priced supercenters and warehouse clubs — also had a negative effect.

“The business was doing quite well until a year or nine months ago, when there was a tripling of the biggest cost — fuel — along with rising food costs, and you can't pass all those increases along,” said Fuller, who left the company five years ago and currently works for the recruiting firm Spencer Stuart in Minneapolis. “Then you've got the economy, with people tightening their belts and getting more conservative. I don't think competition was a big factor, but along with everything else it helped to turn a fragile situation into a negative one.”

Fuller said he maintained close ties with SimonDelivers executives and was at the company's headquarters last week when layoffs were announced. “It was a sad day,” he said. “It was my name on the door.”

Founded in 1999, SimonDelivers outlived dozens of contemporaries like Webvan, HomeGrocer.com and Streamline.com that fell victim to reduced funding and costs that far exceeded their scale. SimonDelivers, however, boasted of achieving positive EBITDA, and had efficient ordering, routing and delivery systems that were “close to world-class,” according to Fuller. “We ran the back end of it as well as anybody.”

The company, which was privately financed, was unsuccessful at finding additional investors or a strategic partnership that would have helped weather the economic storm, Fuller added. Expansion into another city, he said, would have helped the company gain greater scale but was “a bridge too far.”

“They tried very hard to find a strategic partner. But [owning an online business] doesn't help a grocery store push more volume through stores — it means less volume for stores,” Fuller said. “They weren't interested.”

While reports last week said the company had annual sales of about $55 million, volume was as high as $70 million in 2004, SN reported. Last month the company had announced layoffs of about 6% of its 300-member workforce and introduced a new schedule of delivery rates and a minimum order size in an attempt to cut costs and mitigate its rising fuel expenses.

Fuller, a former Pillsbury executive, founded Simon-Delivers in 1999.

Lund Food Holdings, which operates Lunds and Byerly's, launched online shopping in 2006. Gopher Grocery, based in St. Paul, also launched in 2006. Its founder and president, William Orkin, described the demise of SimonDelivers as “bittersweet.”

He said Gopher Grocery is battling the same issues with high fuel costs, but uses an energy-efficient fleet and a considerably smaller delivery area. He said sales have increased by 134% this year, and he expects “quite a lift” as the result of the closure at SimonDelivers.