Exploring the business models of online food retailers and advertisers

Exploring the business models of online food retailers and advertisers

With online sales of specialty foods growing each year, more retail, re-sell, and advertising websites are popping up to get in on the action - each offering a new way of selling and/or promoting gourmet foods online. In earlier article, I outlined a few of the things to look for, both good and bad. Now, I am taking it one step further and exploring a few of the more commonly known sites’ business models to educate food companies considering online expansion.

To begin, I will start by covering iGourmet.com, GourmetFoodMall.com, Amazon.com, and iBuyGourmet.com. If you are aware of any other similar retail/advertising food websites, please let me know and I would be happy to provide my account.

iGourmet.com

iGourmet is the pioneer in selling gourmet and specialty foods online, dating back to the late 90’s. Because of their tenure, they have amassed an enormous catalog (best known for their cheese selection), impressive search engine rankings, and (likely) a customer database worth its weight in gold.

Business Model: iGourmet.com is simply an online retailer in the simplest form; they buy products from producers worldwide and sell them online. Products are stored at a central located and shipped out buy iGourmet.com. Just like a brick and mortar retailer, they profit from buying products at wholesale and marking them up for retail sale.

Taking advantage of iGourmet as a food producer: Unfortunately, iGourmet.com doesn’t offer a paid listing or advertising option. Since they are buying and re-selling products, they will be very selective in whom they list on their site (just like a traditional retailer will). If you are just starting out (regardless of how great your product is), there is a good chance they won’t give you much of a chance. Also, if you do end up selling to iGourmet and your products don’t move, you won’t be getting any re-orders (obviously).

Getting started with iGourmet.com: Typical retail rules of engagement apply here; you will likely have to submit product samples and present a strong case as to why your products are a good fit for their (online) store, just like you would with any retailer.

My personal take: iGourmet.com is an excellent place to sell your products - that is if your products ‘make the cut’. It’s worth submitting products for consideration at least, but if you are just starting out, don’t put too much effort into it. Also, it’s just like selling to any retailer; when they sell a product, they keep the customer information for future marketing - not you.

Pros: Great, reputable retailer with huge sales revenues

Cons: They may never buy your products

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GourmetFoodMall.com

GourmetFoodMall.com was founded in 2001 as a unique, mall-type shopping site for gourmet and specialty food. GourmetFoodMall.com boasts strong search engine rankings (always top 3 on Google for ‘gourmet food’), and a large catalog of eclectic food brands. GourmetFoodMall.com currently features nearly 180 gourmet food brands between their retail and wholesale sites which target both food consumers and wholesale buyers.

Business and revenue Model: GourmetFoodMall.com has developed a very clever business model by offering individual branded ‘webstores’ for each company listed - just like a real shopping mall. Instead of searching for products in one big list, you can enter each companies ‘webstore’ to view their product offerings. When a customer orders your product on GourmetFoodMall, you get the order directly via email for drop-shipping.

GourmetFoodMall capitalizes on this brilliant model by charging vendors a setup fee to build a webstore (basically, a mini-website) on their site with prices ranging from $500-$2000. Instead of charging commissions on products sold, they charge a flat monthly ‘rent’ starting at $50 per month, while their new advertising program has no monthly charge. Fees vary depending on how many products are listed. Additional ‘in-mall’ advertising is available as well with a pay-for-performance program similar to that of Google’s AdWords.

Taking advantage of GourmetFoodMall.com as a food producer. GourmetFoodMall.com is a great place for gourmet food companies to gain additional exposure online. As opposed to other online sites, GourmetFoodMall’s branded webstores allow shoppers to identify with a vendor’s brand, not just the description, image, and price.

Getting started with GourmetFoodMall.com

Fill out a prospective merchant form and request to speak with a representative to conduct a short interview to determine which options will work best for your company. Once a program has been chosen, you will need to fill out a product spreadsheet, submit graphics, and in some cases, apply for a compatible credit card processing account.

My personal take: Even if you already have a sufficient e-Commerce website, consider their new advertising program (one-time fee of $500) since developing a whole new website (‘webstore’) may not make sense due to the additional expense and monthly credit card fees. If you are looking for additional website traffic and search engine rankings then GourmetFoodMall.com is a great option for increasing your online presence if your budget allows.

Pros: very good search engine visibility, highly trafficked, well-established,

Cons: can be a bit cost-prohibitive for small budgets

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iBuyGourmet.com

Disclaimer: I am the founder of iBuyGourmet.com, so consider this a shameless plug. However, I have presented the information in this article in an unbiased, objective manner to point out the different types of business models for selling and advertising food online.

iBuyGourmet.com is a unique, hybrid model for advertising and selling gourmet food online. Vendors can setup products to be sold on iBuyGourmet.com, or linked over to their own site for ordering. Products are not stocked by iBuyGourmet.com - it is strictly drop-ship. Compared to other food sites and advertising mediums, iBuyGourmet.com is a very cost-effective way for a small-medium size vendor to gain additional online exposure and sales.

Business and revenue Model: iBuyGourmet.com offers 2 programs for listing products.

1. Vendors pay a one-time setup fee of $199, and a 15% commission on items sold on the site (no commission on shipping). Vendors can list unlimited products.
2. Vendors pay an annual listing fee of $249 and link shoppers to their own site for ordering. iBuyGourmet.com charges no commission. Vendors can list unlimited products.

Additional advertising is available as well, such as home page banners and features.

Taking advantage of iBuyGourmet.com as a food producer: iBuyGourmet.com’s flexible programs allow the smallest and largest food companies to benefit. With a small setup fee and no monthly fees, it is very affordable - even for the smallest companies starting out. iBuyGourmet.com currently averages 50,000 views per month, and vendors averaged over 200% ROI in the past year site-wide.

Getting started with iBuyGourmet.com: Interested vendors first need to submit products for review to iBuyGourmet.com. Once approved, vendors can submit product listing information via product spreadsheet/order form, and in some cases product information can be attained from vendor’s website.

My personal take: Getting listed on iBuyGourmet.com now is like buying an emerging stock at IPO - there is a great chance that you will have gotten in at ‘ground level’ of something with big potential (see Google), not just immediate benefits. The site is only 1 year old but really taking off, hence the low setup/advertising fees.

Pros: Very low investment required, rapidly growing, profitable for vendors (site-wide average)

Cons: Still relatively new, only 1 year old

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Amazon.com

Amazon.com, the world’s largest online retailer entered the gourmet/specialty food arena after seeing enormous growth in online sales of food - and others taking advantage of it (see iGourmet.com and GourmetFoodMall.com). Amazon has excellent search engine rankings and an enormous amount of website traffic at its disposal for promoting their food section. When an order is placed on Amazon for your product, you get email notification with the order details for drop-shipping.

Business and revenue model. For smaller producers, Amazon.com charges a monthly fee of roughly $40 plus 20% of sales (including the shipping charge). For larger companies with established brands, Amazon will occasionally purchase products at wholesale and re-sell, just like iGourmet.com. This option is typically not offered to small-medium sized companies (in our experience).

Getting started with Amazon.com. Just visit any page on Amazon.com, and you should be able to find prospective vendor information.

My personal take: Basically, it breaks down to $480 per year plus 20% of anything that sells. For those companies selling a lot online, this isn’t too much. But, for a smaller producer with limited marketing dollars available, this can be cost-prohibitive, especially if your product ends up buried on page 20 of your relevant category. Amazon is such a large site that it can be hard to really stand out and get good visibility. On the other hand, with the right type of unique product, Amazon can be a great way to boost your online sales.

Pros: Highly trafficked, reputable retailer

Cons: 20% commission is charged on shipping amount too, products can get buried among thousands of others

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Overall Summary of all sites:

Keep in mind that this is not intended to say that you should choose only one of these sites to pursue when developing an online presence. In fact, it is recommended to participate in all (or as many as possible) of these programs as part of your multi-channel approach to marketing and selling products. Each business model offers a unique benefit - it just depends on what works best for your business/product type and budget.

Site:	Setup Fee:	Monthly Fee:	Commission	Total Annual
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iGourmet.com	n/a	n/a	n/a	n/a
GourmetFoodMall.com	$500+	$50+	0	$500+
iBuyGourmet.com	$199	0	15%	199+
Amazon	0	40	20%	480+