Case Study

AUGUST 8, 2001

Grocery Gateway Masters Canadian Home Delivery

Toronto-based Grocery Gateway recently expanded with two acquisitions. This fulfillment and logistics specialist will succeed

By Jordan Kendall With Bruce D. Temkin James Sharp

where Webvan Group and other online grocers have failed.

Toronto-based Grocery Gateway expanded last month, buying Direct Home Delivery, a courier that delivers for Staples Business Depot. We spoke with Al Sellery, president and CEO of this Net-based vendor of groceries and other items, to see how it’s bucking the trend of dot-com failures. According to Sellery, the firm’s annual revenue run-rate is $40 million and its positive gross margins will enable the company to break even in 2002 without additional financing. Sellery attributes the firm’s success to its focus on:

• Single-item picking. Grocery Gateway’s 280,000 square-foot warehouse in north

Toronto uses an intricate network of wireless scanners, high-speed conveyors, bar code readers, and well-trained pickers -- all controlled by a fully integrated ERP system. Sellery claims that this setup is far more efficient for single-item picking than the capital-intensive carousel technology used by players like Webvan. As volume grows from 1,000 orders per day toward the facility’s capacity of 3,000 orders, Sellery expects the cost per item picked will drop 50%.

• Local logistics. Using software from Descartes Systems Group, Grocery

Gateway plans each run based on delivery locations, order sizes, and time of day, allowing the firm to optimize costs while giving customers a choice of 18 different 90-minute delivery windows. The addition of Staples Business Depot’s deliveries, which occur during the day when grocery trucks are the least busy, helps drive even greater usage of its assets.

• Customer niches. Rather than blindly building volume, Grocery Gateway targets

dense, affluent suburbs like North York and Richmond Hill. The company’s $60 minimum order size...