The appetite for online food and beverage exchanges may be shrinking among investors as well as buyers and sellers. Today, more than 70 business-to-business operations are trying to gobble up part of the $800 billion global food market and $600 billion alcoholic beverage market. The businesses are striving to make buying and selling huge container-loads of food and spirits as easy as picking up a soda and a bag of chips at the corner convenience store.
In the process, they hope to streamline transactions, deliver fresher food, reduce inventories and establish order in a traditionally chaotic and fragmented industry.
A lot of the players are finding that tackling these problems can be extremely difficult, time-consuming and expensive. They're also finding that it's tough to be all things to all people.
As a result, many of these business-to-business exchanges are changing strategies and pursuing niche areas, says Nick Handrinos, senior manager for consumer business practices at Deloitte Consulting.
So far, no one has achieved any significant scale. However, several industry giants have announced plans this year to build large online marketplaces that may threaten the smaller independent exchanges. Among them is Transora.com, a consumer product marketplace formed by 49 industry players, including The Coca-Cola Co., General Mills, Kraft Foods, PepsiCo, Procter & Gamble and Unilever.
A handful of powerhouses in the meat and poultry business have also formed an unnamed exchange. The founders include Cargill, Farmland Industries, Gold Kist, IBP, Smithfield Foods and Tyson Foods.
In the end, Deloitte predicts, there will only be two or three large exchanges, while the others will either close up shop or concentrate on niches.
Two of the ingredients for success are liquidity and scale, Handrinos says.
In the quest for scale, look for significant merger and acquisition activity. Within the food and hospitality area, for example, Transora is currently competing against dozens of other e-markets. "Many will eventually fall by the wayside, at which point Transora or someone else will no doubt acquire many of those still in the game," Deloitte predicts in a recent report on e-marketplaces.
In August, WorldCatch.com swallowed Fishmonger.com to form the seafood industry's largest online marketplace. WorldCatch hopes to hook a big part of the $350 billion worldwide seafood market.
"We've both been going after the same market. Geographically, we are about 10 miles away from each other," says Jim Hilger, WorldCatch's chief executive. "It became obvious that if we could combine our two companies, we would be the leader in this industry."
The WorldCatch merger is the latest example of consolidation in the crowded field. Dozens of other marketplaces are looking for suitable partners as the industry consortiums come on board and venture financing dries up.
Even with lots of money, it's not easy to make a go of it. Just look at Efdex.com, an exchange proposed for the food and drink sector. Once an industry darling, it has burned through $69 million in venture capital, and has very little to show for it. Its CEO, Ellen Marram, formerly a president of Tropicana, quit after just seven months at the helm.
Even giants such as Transora are not guaranteed success. The Federal Trade Commission is investigating consortium exchanges such as Transora, looking to ensure that they will not collude on prices and that efficiencies will be passed on to business partners and, ultimately, consumers.
EcFood.com, a food exchange featuring products, supplies and equipment, is among the players looking to change the way food is bought and sold online, says David Laukat, ecFood's CEO. "The technology is not the critical component," he says. "It's the business process. It's all about changing people's behavior."
EcFood makes money by charging a fee on each transaction on its Web site, with the average transaction in the $551,300 range. Laukat says the privately held firm isn't worried about consolidation in the food and beverage industry. It received $4 million in venture capital during its first round of financing, and expects to close a second round within the next few weeks.
GlobalFoodExchange.com, a marketplace dealing in meat, poultry, seafood, fruit and vegetables, is also beginning to focus more sharply on providing services to the suppliers within the perishable-food industry, says Amanda Setili, the company's director of marketing. "It's a shift for us," she says.
GlobalFoodExchange acquired Gloucester Seafood Display Auction in June, and formed an exclusive relationship with the National Fisheries Institute to focus more on the seafood front. The company will continue to make acquisitions where it makes sense, Setili says, but overall, GlobalFoodExchange isn't worried about the competition and consolidation within the online food and beverage industry.
"We have technology we believe works very well for our marketplace," Setili says.