Friday, May 4, 2012 Strategic Human Resource Management Blog
Failure to Deliver: Why Did Online Grocery Stores Crumble? by Chad Navis

During the technology boom of the late 1990s, analysts predicted that online grocery stores would be the next big story in e-commerce. Forecasts of nearly $11 billion in sector sales lured entrepreneurs into this emerging market space. But by 2001, the leading online grocery firm had crumbled and others soon followed.

Why, in the midst of an e-commerce boom that saw online services such as travel booking, banking, and auctions quickly gain recognition and acceptance from investors and customers alike, did the grocery business fail in its attempt to develop a web-based offering?  Online grocery firms benefited from high publicity, market demand, technological feasibility, and even profitability in several locations; yet, the category itself failed to take root.  As part of my on-going research on entrepreneurship in new market categories, my co-authors and I tackle this paradox.

Our preliminary research findings suggest that online grocery firms failed because they did not agree on a shared vision of the market category that could, in turn, be communicated to potential investors and customers. Instead, the emerging online grocery sector was split between one group of firms that cast the concept as something new and revolutionary and another group that positioned it as a natural extension of the existing grocery industry. As a result of this divergence at the most fundamental level, online grocery failed to coalesce into a category of commercial activity with distinct merits that could be evaluated apart from e-commerce more generally.  When the dot com bubble burst, investments dried up and the firms failed.  Peapod—which tethered its identity to brick-and-mortar grocers—is the exception, saved by the alliances it had established with the grocery industry. 

Want to learn more about how entrepreneurs succeed in emerging market categories? By studying the non-emergence of the online grocery sector, we can identify which factors matter most when creating a new commercial category. Follow our research findings on the Forward Thinking blog in the coming months!