WhyRunOut Outlasts Larger Rivals
Two years ago, as online grocers fed with huge amounts of money were sprouting up, a tiny Aliso Viejo service began taking grocery orders over the Internet and making deliveries to buyers in south Orange County.
WhyRunOut.com seemed an unlikely rival to huge outfits such as HomeGrocer.com and WebVan Group, which bought fleets of trucks, built big warehouses and made bigger headlines.
But WebVan, which took over HomeGrocer last year, posted losses of more than $1 billion before closing Monday.
Meanwhile, tiny WhyRunOut is still chugging along.
With less than $10 million in funding, the company delivers groceries from 15 Stater Bros. stores from Santa Clarita to San Diego County. Users pay $6.99 per delivery, and orders placed by 10 a.m. often are filled the same day, contrasted with next-day deliveries once offered by WebVan. WhyRunOut customers in some areas can have laundry and film picked up, processed and returned for an additional charge.
Stater Bros. pays WhyRunOut an undisclosed fee to make the deliveries. Some analysts see this hybrid delivery system as the next business model as conventional grocery chains introduce online-based delivery to boost sales.
Britain’s largest grocer, Tesco, recently paid $22 million for a 35% share of GroceryWorks, a vote of confidence in the future of supermarket-based delivery services.
WhyRunOut remains something of a shoestring business, making a few hundred deliveries a day Monday through Friday. But that’s not necessarily a bad thing, observers said. Daniel Frahm founded the delivery service in December 1998.
“Something small like that is more likely to succeed,” said David Kathman, a Morningstar analyst who followed WebVan’s rise and fall. Demand never approached WebVan’s projections, Kathman said, in part because the harried, overworked people thought to be prospective customers were too busy to guarantee they’d be home for the next-day deliveries.
“WebVan aimed really big on the assumption that they would get 8,000 orders a day for each warehouse serving a metropolitan area,” Kathman said. “And they were getting something like 2,000 a day.”
He said delivery services aligned with established food chains have the best chance of success, citing Dallas-based GroceryWorks.com, which delivers for Safeway Inc.
For Stater Bros., a Colton-based chain whose stores are concentrated in the Inland Empire, using WhyRunOut to deliver groceries is a far cheaper way to expand business than building stores at $4 million apiece. The lure is extra sales with no risk.
“I have said for years that if the home-delivery business was going to be a success, it would be bricks- and-mortar people who helped make it work,” Stater Bros. Chairman Jack H. Brown said.
Brown said sales at the Stater Bros. stores that use WhyRunOut to deliver Internet-ordered groceries have risen 2% on average--an increase that comes with virtually no extra labor, administrative or advertising costs. Nearly all the deliveries are to customers who usually shop at other chains, Brown said.
Brown declined to give a dollar amount for the increased sales. He said the fee that Stater Bros. pays to WhyRunOut is minimal compared with the benefit.
In addition to the Safeway-GroceryWorks alliance, Brown cited as evidence the acquisition of Peapod Inc., another failed online grocery service, by Royal Ahold. The Dutch company, one of the largest bricks-and-mortar grocery businesses in the world, operates mainly in the eastern U.S.
Rather than build its own warehouse system, WhyRunOut has employees fill orders by shopping at Stater Bros. Customers can pick from nearly 30,000 Stater Bros. items, more than twice the number WebVan offered from its own warehouses. The average size of an order is about $100, Frahm said.
WhyRunOut is offering free delivery to former WebVan customers through July 31, and Frahm said business doubled the first two days of that special deal and has continued to surge.
WhyRunOut recently acquired a majority stake in PDQuick.com, a Los Angeles grocery service that delivers a smaller range of products within about a mile of its small stores. WhyRunOut changed PDQuick’s name to its original name, Pink Dot.
The company, which takes orders online and by telephone, had tried to expand into 30 cities, but couldn’t turn a profit, nearly ceased operations this spring and closed several of its locations. It now operates out of just seven Los Angeles-area locations. Earlier this year, PDQuick.com tried to merge with rival Kozmo.com, but funding never materialized and Kozmo.com shut down.
WhyRunOut’s presence in Los Angeles, Orange and San Diego counties puts it in three of the seven markets in which WebVan operated.
“I’m just glad we’re here overlapping them in the three largest of their seven markets,” Frahm said.
With just 30 vans delivering within seven miles of Stater Bros. stores, WhyRunOut is still small potatoes and only now is approaching the break-even point on operations. Frahm wouldn’t disclose the exact number of daily deliveries but said drivers delivering from Stater Bros. typically visit two or three homes an hour.
At a large Stater Bros. in Lake Forest on Thursday, WhyRunOut’s nondescript white van was parked out back. Drivers leave the vans at the stores when they’re not in use.
Inside, two company employees shopped with computer-generated lists, their large carts marked with pink, blue and orange strips of paper to keep three orders separate.
After boxes of frozen potpies, jars of lemon juice, bags of lettuce and cases of drinking water were scanned at a checkout counter, WhyRunOut supervisor Elaine Nadalin swiped a card to pay for the orders, then stored them and headed back to the aisles for another round.
The van driver, scheduled to arrive at 2 p.m. to begin deliveries, would make a second round if he couldn’t haul all the groceries on the first trip, she explained.
“After all the Internet hoopla a couple of years ago, we’re just trying to turn a profit now,” Frahm said.
