Grocery Gateway Inc., one of the few survivors among e-grocers, was put into voluntary court receivership yesterday and will be snapped up by Longo Brothers Fruit Markets Inc., an independent family-owned grocery chain.
Mississauga-based Longo's, which was looking for an on-line expansion opportunity, plans to operate the e-grocer over the next few months on behalf of the receiver, Richter & Partners. Longo's has an agreement to acquire Grocery Gateway after the restructuring is complete, Anthony Longo, president and chief executive officer, said in an interview.
Longo's plans to close Grocery Gateway's distribution centre and pick and pack customer orders from Longo's 14 stores in the Greater Toronto Area, he said.
For now, "it's continuing, business as usual," Mr. Longo added.
In contrast, he said major U.S. e-grocers failed because they built big distribution centres but never got enough customers or economies of scale to make the model work.
Privately held Grocery Gateway, founded in 1998 just as the e-commerce craze took off, has been offering a growing number of promotions over the past couple of years as it scrambled to boost business.
By the beginning of 2003, a company executive said it was "months and not years" away from profitability, although there have been management changes since then.
"I was always amazed at how they could do it and make money," said Duncan McKie, president of Pollara Inc., an Internet market research company. "When you crunch the numbers, it's problematic. It's just such an expensive business to run."
Longo's was the original supplier to Grocery Gateway, but was replaced in late 2002 by Sobeys Inc., the country's No. 2 supermarket chain. That deal boosted Grocery Gateway's product count by one-third to more than 10,000 items. Some observers expected that the partnership could be a springboard to Grocery Gateway eventually expanding beyond its Ontario base.
Andrew Walker, a spokesman for Sobeys, said in an interview that it found out only yesterday about Grocery Gateway's receivership and Longo's plan to take it over.
The insolvency will have "no impact of any significance to us," Mr. Walker said, adding that the e-grocer's sales volumes were "immaterial" to Sobeys.
As for whether Sobeys had seen the writing on the wall, Mr. Walker would only say that it had put Grocery Gateway on tight credit terms, "reflective of the inherent risk in the business."
Mr. Longo would not disclose any details of Grocery Gateway's financial difficulties.
Grocery Gateway's revenue was growing at about 30 per cent year over year by early 2003, and sales were expected to be in the $70-million range in the company's financial year ended in June, 2003.
However, the revenue figures include Grocery's Gateway's third-party delivery division, which is not affected by the receivership and will continue to operate separately.
The on-line grocer had branched out into a wide assortment of goods, including wine (through a partnership with the Liquor Control Board of Ontario), hardware items (supplied by Home Depot) and office supplies (through Staples/Business Depot.)
Mr. Longo said yesterday that Grocery Gateway will discontinue selling the Home Depot and Staples items in two weeks, and is reconsidering its ties with the LCBO.
Also in two weeks, it will stop carrying Sobeys private labels and other products and replace them with Longo's goods, he said.
Longo's already has a delivery service that customers access through phone, e-mail or fax orders. It plans to stick to the Greater Toronto Area, Mr. Longo said.