Duo Spices Web with Ethnic Food

Barbara Rose

11/15/99 - When Parry Singh overheard his sister-in-law complaining about her stressful, 50-minute drive through Los Angeles traffic to stock her Burbank, Calif., pantry with Indian foodstuffs, he believed he'd discovered an Internet opportunity.

The 29-year-old computer engineer, then a student at Northwestern University's J. L. Kellogg Graduate School of Management, invested $7,000 of his student-loan money to buy rights to 60 ethnic-oriented Internet domains such as Namaste.com (Respectful greetings), HuanYin.com (Welcome) and QueRico.com (Oh, wow!).

By the time he and a partner graduated this past June, they'd secured $1.2 million in backing for EthnicGrocer.com Inc. from a local investor and developed the technology and relationships to deliver, for instance, 42 kinds of Indian pickles from a suburban Chicago warehouse.

By October, they'd launched Web sites offering Indian, Chinese and Hispanic foods and were shipping an average 150 orders per day. Sales far exceeded first-year projections of $1 million, and the 40-person firm already was profitable, according to a source familiar with the company.

As early as this week, they're expected to announce $12 million in funding from California's Kleiner Perkins Caufield & Byers and Benchmark Capital -- two of the country's most prominent venture capital firms, whose money and clout will give them an edge in establishing a leading Internet brand.

"We want this to be a $1-billion company," says Mr. Singh, impatient about interrupting work to talk to a reporter in his cramped Evanston offices, where wastebaskets are overflowing and programmers are squeezed into tiny cubicles.

"(One billion) is too small," says his partner, Subhash Bedi, 28. "People like large numbers."

EthnicGrocer's rocket-like start illustrates the frenetic pace at which entrepreneurs must move in an online economy swarming with competitors and easily copied ideas. It also signals the beginning of Chicago's emergence -- belatedly -- as a region where cocky risk-takers with good ideas and all-consuming drive can hook up with savvy mentors and resourceful backers.

The Chicago area has yet to produce a winner in EthnicGrocer's business-to-consumer market (the region is rich in business-to-business ventures) -- a market where companies like Amazon.com Inc. and EToys Inc. command multibillion-dollar market caps. One of the area's oldest Internet firms -- Skokie-based online grocer Peapod Inc. -- is facing formidable competition from a host of more-recent startups, including California's WebVan Group Inc., which was backed by Benchmark Capital.

Meanwhile, EthnicGrocer is one of scores of startups riding the wave of money flowing into dot.coms. At least one-third will fail, and a smaller number will thrive.

In the ethnic food niche, "the market will support one, maybe two dominant players," says Mohanbir S. Sawhney, a Kellogg e-commerce professor who advised Messrs. Singh and Bedi and sits on their board. "So, it's an issue of who gets there first and builds a brand name, builds traffic and then follows through with good execution."

Mr. Singh is well aware of the risks: His first Internet venture failed in 1996. "It was too early for its time," he says of the New York-based health care inventory-procurement and management company.

At Kellogg last year, Messrs. Singh and Bedi's 4.0 grade averages suffered as the pair skipped classes to wine and dine the key distributors who supply mom-and-pop grocers on such ethnic commercial strips as Chicago's Devon Avenue.

Each of the founders borrowed $100,000 to jump-start the venture. To weed out less-than-committed partners, they required the classmates who joined them to invest $10,000 each. "Everybody wants to work in a startup," says Mr. Singh, "but nobody really wants to take a chance."

By December, they began developing the real-time inventory and order-fulfillment systems that are linked to www.EthnicGrocer.com and its three affiliate sites, all launched since July.

Their first outside investor was former radio announcer and telecommunications entrepreneur Don Jones, who gave them $200,000 after hearing their presentation at Kellogg.

Keith Bank, founder of KB Partners, a 3-year-old Northbrook firm that funds early-stage companies, recalls meeting with the two men in March.

"(Their plan) wasn't that well-written," he says. "But we liked the idea and we were impressed by them. We definitely saw the fire in the belly, the 'success-is-the-only-acceptable-outcome' makeup.

"We also sensed that while they were quite brash and very smart, they were still open to input," he adds.

Their business targets the $50-billion ethnic food market -- one of the bright spots in an otherwise slow-growing U.S. food industry, according to Alexandria, Va.-based consultant Promar International Inc.

Their Web sites (which feature "gringo" taglines like, 'Real Chinese, Real Easy') are designed to appeal to people who enjoy exotic cuisines, as well as to ethnic households. By featuring recipes, cooking advice, contests and cultural information, they aim to be community sites in addition to shopping hubs.

"That's smart," says analyst Ekaterina Walsh at Massachusetts-based Forrester Research Inc. "The trick of creating a successful ethnic site is appealing to your ethnic group without alienating anybody else."

A Forrester study suggests that Asian-Americans (including Indians) and Hispanic-Americans are the most active Internet users, with 64% and 36%, respectively, of households online, compared with 34% of Caucasian Americans. Traffic on EthnicGrocer's sites is growing 200% a week, but only 4% of visitors place orders, says Mr. Bedi. One key to driving more traffic will be negotiating strategic relationships with major portals and related Web sites -- a process Mr. Bedi says is under way.

Nonetheless, he insists, "the single biggest driver is when you delight a customer."

More worrisome is the need to grow the business quickly enough to meet surging demand.

On a recent weeknight, Mr. Singh, who arrives at the office at 7 a.m. and leaves after midnight, waved good night to an employee leaving around 7:30 p.m. "Working half-a-day?" he joked.

He and Mr. Bedi were doing tag-team interviews of candidates for some 100 technical and marketing positions they plan to add within the next several weeks, after their move to larger quarters nearby.

"The guys running EthnicGrocer are going to be tested severely in their next course," says Oak Brook investor Joe Piscopo, a backer with KB Partners. "Managing through those growth stages from a startup, the stress is ferocious."

(C)1999 by Crain Communications Inc.