It looks like the business model of selling groceries over the Internet and delivering them to your door is a loser. Peapods (PPOD) high profile stock is plummeting. Streamline (SLNE), Webvan (WBVN) and the newest kid on the block, Homegrocer.com (HOMG), have prices hovering around their IPO debut price.
Some analysts are saying the online grocers are having problems because brick and mortar groceries satisfy most consumers' needs. But others, for example senior market analyst Jeff Hirschkorn of IPO.com (as reported by E-Commerce Times) believe the need is there, but the business model should look more like that of priceline.com (PLCN).
What? People are going to bid on groceries and then pick them up at a local market? All right, I wasnt originally a big believer in the Priceline model and Ive been proven wrong. But will this model really work with groceries? I dont think so. It just seems this is stretching the Priceline model way too far.
Heres my argument.
We know the market for groceries tends to break out into different segments. For example, there are people who want a broad selection of products, convenience and service, and are willing to pay a higher price to get these benefits. In the offline world, these people tend to go to high-end grocers and specialty shops.
Statistics show this group tends to have relatively high incomes and Internet connections. It appears that Peapod and the other net grocers who deliver to your door are trying to appeal to this segment.
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