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How’s Business?: Online groceries

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Most of us do it every week. We go up and down supermarket aisles with shopping carts in our selection of groceries. Then we continue to the check-out cashier and stand in line. We then continue unloading all we selected onto the counter, and after paying put everything back in the cart.

From there, we start the trek home. It’s called food shopping. Some of us like it and some of us hate it, but it is a necessity for all of us. But is it? Times are changing as we move further into the online world. And with it comes online food shopping.

With buy-in-bulk shopping centers such as BJ’s, the likes of Pathmark and Waldbaum’s were already feeling the pinch. And in Long Island City is FreshDirect, a new online grocery business that appears to be doing quite well. The Long Island City location boasts some 300,000 square feet.

To get the food deliveries out, they maintain a modern fleet of vans, and the business has been open at this location since last September, according to Joe Fedele, the company chief executive and co-founder. Business has been quite good, with daily sales running from $500,000 to $700,000, Fedele said, adding that the niche in this business is combining lower prices with high-quality food.

Success is keeping overhead low. And how do they do it? They produce a lot of the food they sell. They bake their own bread, have in-house butchering, prepare their own pastries and even roast their own coffee beans. This certainly is a plus for profit margin. And it’s profits that Fedele and FreshDirect are focused on with profit expectations for the fourth quarter of this year.

So how’s business for the online grocery? If we direct our attention to FreshDirect, it appears quite promising. Its plant has a daily capacity of 16,000 orders, and they are running at just under 10 percent. At just this one location exists a future growth factor of 90 percent. And that’s just one location.

Success will surely lead to additional locations. The bumps in the road will be those who wish to continue shopping conventionally; however, as time progresses with a younger and more computer-literate generation getting older, the conventional supermarket as we know it just may be proceeding to its own check-out counter.

Joe Palumbo is the fund manager for The Palco Group, Inc. and can be reached at palcogroup@aol.com or 718-461-8317.

Posted 7:05 pm, October 10, 2011
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