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Bagged by rising food and fuel costs, online grocery is permanently parking its familiar yellow trucks

Over the next two weeks, those distinctive yellow delivery trucks will be disappearing from metro-area streets.

SimonDelivers, the Twin Cities-based online grocery pioneer, said today that rising fuel and food costs will force the company to close its doors by the end of the month.

The company informed employees this morning and followed with an e-mail to its 19,000 active customers this afternoon. It will make its final deliveries over the next two weeks.

Since SimonDelivers launched nine years ago during a heyday for e-commerce start-ups, the company has delivered nearly 4 million orders to 180,000 unique customers.

“SimonDelivers has enjoyed significant support in the community,” Liwanag Ojala, president of SimonDelivers, said in a press release. “Unfortunately, that support was not enough to combat the current economic conditions, which have affected our costs and our customers’
purchasing decisions.”

An e-mail and phone call to the company were not returned this afternoon.

A survivor for a decade
The thrifty company had apparently struggled to rein in expenses in recent months. Last month, the company reportedly laid off 17 employees and initiated a fuel surcharge and $50 minimum order on deliveries. It also extended its delivery window from two to four hours so it could combine more runs to conserve fuel.

“SimonDelivers has been a survivor. That’s the best way to describe the company,” said George John, a marketing professor at the University of Minnesota’s Carlson School of Management.

The company started delivering to customers in the Twin Cities in April 1999. It was one of the first in the nation to use a model where groceries were picked up and delivered from a central warehouse. And like scores of other e-commerce start-ups during the late 1990s, SimonDelivers’ original investors had huge ambitions. “They were all going to be the next Amazon,” John said.

As the company matured, however, it never achieved that Amazon-like growth.

“I suspect like most other businesses they’re facing some cost pressure, but I don’t think that in itself would have caused them to shut down if they hadn’t come to the conclusion that they were not going to be the next Amazon,” John said.

While some online grocery stores are still hanging on and perhaps making modest profits, they haven’t managed to fundamentally change the way people buy groceries in the way that Amazon and iTunes have changed the way we buy books and music, John said.

‘Business as usual’ at Lunds and Byerly’s
A spokesman for Lunds Food Holdings, which owns 21 Lunds and Byerly’s grocery stores in the Twin Cities area, said its online grocery delivery service is continuing “business as usual.”

Greg Mack, Lunds’ marketing and communications director, said his company will likely take a close look at what did and didn’t work at SimonDelivers, but he noted that it’s a very different model than its own.

“We are a brick-and-mortar operation first, and online is an extension for us. It’s not our primary way of interacting with consumers,” Mack said.

Unlike the central warehouse model used by SimonDelivers, Lunds’ online store uses personal shoppers to fill shopping carts at its existing physical stores for online customers.

Lunds and Byerly’s started delivering in the seven-county metro area about two years ago. John said he doubts the added competition was a significant factor in SimonDelivers’ decision to close. However, its closing will certainly create new opportunity for Lunds.

“That’ll be pretty darn interesting,” Mack said. “You’re catching me with some pretty fresh news, and certainly it’s always exciting for anyone in any business to see a group of customers who might be predisposed to shopping with you. We’d certainly love to take care of their business.”

Here is the full press release from SimonDelivers:

July 15, 2008 – The Twin Cities’ leading online grocery company – SimonDelivers, Inc. – announced today that it will deliver is final orders over the next two weeks and then close its doors.

The company communicated the store closure to its employees this morning and to its 19,000 active customers via email this afternoon.

Through its nine-year history, SimonDelivers has delivered nearly 4,000,000 orders to 180,000 unique customers.

The company was one of the first in the nation to build an online grocery model where groceries were picked and delivered from a central warehouse location. Despite achievements in operational efficiency admired by other online grocers around the country, rising fuel and food prices contributed to the company’s closure.

“SimonDelivers has enjoyed significant support in the community,” said Liwanag Ojala, president of SimonDelivers. “Unfortunately, that support was not enough to combat the current economic conditions, which have affected our costs and our customers’ purchasing decisions.

We are grateful to our customers, vendors, partners and especially our employees, who have been committed to proving the viability of an online grocery delivery service for the last nine years.”

SimonDelivers will continue business to sell its remaining inventory at www.simondelivers.com over the next two weeks.

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