NEW CEO HAS BIG PLANS FOR NETGROCER

JON SPRINGER

NORTH BRUNSWICK, N.J. -- NetGrocer.com's recently appointed CEO Jim Chambers says he intends to take the company here from a $7 million to a $3 billion business over the next three years.

That growth will rely on the company's strategy of center-store replenishment and FedEx delivery, which Chambers says is the best approach in the fledgling Internet grocery business.

In an interview with SN, Chambers and NetGrocer president and founder Fred Horowitz said that Internet grocery services that rely on self-delivering goods from regional warehouses are too "high-end and high-touch." NetGrocer, which delivers nonperishable groceries, drugs and general merchandise via Federal Express to 48 states out of a single warehouse in North Brunswick, can achieve better results without ringing up the labor and real estate costs of its on-line and brick-and-mortar competitors, Chambers said.

"We don't care how far from a not-yet-built warehouse you live," said Chambers. "That's the fundamental difference between our business model and the van-delivery companies."

"Most of them are bogged down trying to re-invent FedEx, while we don't have to," Horowitz added. "That allows us to have the highest margins and stay focused on building our core business and profitability."

Horowitz, who founded NetGrocer in 1995, said the company has worked hard to get its business model right before hiring Chambers in January to lead its expansion. A former executive at Nabisco, Parsippany, N.J., and most recently a group president for Information Resources Inc., a Chicago-based market research firm on the packaged goods industry, Chambers intends to oversee an aggressive growth strategy. Immediate plans are to add a warehouse on the West Coast and add frozen food to NetGrocer's offerings.

The West Coast warehouse -- one of three or four NetGrocer plans to build -- will speed delivery time to NetGrocer customers west of the Mississippi. Though Horowitz says most shoppers receive their deliveries within 48 hours, the NetGrocer Web site promises customers delivery within one to four business days. A West Coast distribution center would also make delivery cheaper to customers west of the Mississippi, who currently pay higher shipping charges than East Coast customers.

Frozen food, to be delivered in cooler-like containers, will be added to NetGrocer's offerings by the end of the second quarter, Horowitz added. But the company has no plans to shift from its long-standing strategy of center-store replenishment.

"That's still our core strategy -- to take away the boring, heavy part of a shopping trip,"said Chambers. "People can still do the kind of shopping at the grocery store that's fun -- choosing their own fruits and vegetables. That's what we think the grocery store is going to be in the future -- a place for perishable goods. What we do is replenish the Center-Store goods people tend to run out of on a regular basis. We think there's a very large market for on-line sales of those goods and we want a piece of it."

NetGrocer also offers drugs and general merchandise ranging from books to office supplies to toilet brushes, but groceries account for around 80% of NetGrocer's sales, which Chambers said totaled "north of $7 million" in 1999. NetGrocer's best-selling products are cereals, soups and pet food, Horowitz said.

The company intends to attract customers in part through partnerships with its vendors. Quaker Oats' Quisp cereal, for instance, is being re-introduced on the Internet and a link to purchase the product directs users to NetGrocer. NetGrocer also sees an opportunity for business-to-business transactions, Chambers said.

Chambers and Horowitz were noncommittal when asked about the possibility of taking the company public. But they admit seeding the growth they have in mind will take some doing. "Executing an aggressive growth strategy will have fairly large capital requirements," Chambers said. "We'll be very interested in exploring all of our options."