Plumgood Foods, the internet grocer specializing in the delivery of organics and natural foods, prepared meals and household supplies, has yet to make money, but the company is getting bigger nonetheless with an infusion of $1 million in investment capital.
The two-year old company that serves parts of Tennessee and Kentucky will use the money as it moves from its current warehouse space to a larger 30,000 square-foot location. Plumgood's current space is about 10,000 square-feet.
While the company has yet to turn a profit, company founder and CEO Eric Satz has taken a conservative approach that has helped Plumgood Foods keep costs down. At the same time, the business has continued to grow revenues and attract investment capital.
Stuart McWhorter, managing partner of the equity firm Clayton Associates, told the Nashville Business Journal, "Getting a third round (of financing) suggests that they are hitting their numbers and growing. If a company is doing well in terms of hitting budgets, investors tend to be much more patient."
Patti Freeman Davis, senior retail analyst at Jupiter, said, "Of course you never know what will happen with an individual company, but (online grocery shopping) is growing at a fast pace."
"A start-up business, especially one with a warehouse and refrigerated trucks, is going to take a while to make a profit," she added. "What's important is that they have benchmarks for growth that make sense."
Mr. Satz explained his strategy for building the business. "We have been building the infrastructure and the approach. You have to learn to crawl before you can learn to walk."
The infrastructure investments, according to the NBJ report, include proprietary software and other "technical secrets" to make the company more efficient at receiving and fulfilling customer orders. Mr. Satz is looking to create a system that will have the ability to be exported to other high-density consumer markets.
The online grocer has been successful in upping revenues through its prepared food offerings, which include gourmet meat entrees, soups, salads and desserts. Plumgood's Satz said the company is looking to add ethnic-style foods to its menu of options. Currently, prepared foods make up 15 percent of company revenues with the goal of these items eventually reaching 25 percent.
The company has a regular customer base of 2,500 with the average order between $75 and $100.
Discussion Questions: What's your opinion on the potential profitability of online grocers? Are online grocery companies that focus on serving a niche such as organics/natural products or prepared foods more or less likely to succeed than those that take a broad-based approach?