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Dean & Deluca Takes its Specialty
Fare to the Web

Company Taps Former Starbucks President
By Shailaja Neelakantan   Fox Market Wire
Can a company find riches selling Hudson Valley duck foie gras over the Internet?


Dean & Deluca, the upscale, New York City purveyor of high-end food, wine and kitchen gadgets, hopes so. The company recently hired the former president of Starbucks's North American operations and secured mega financing with the goal of moving half of its business onto the Internet within five years.

The company also plans to build on the exposure gained from its Web efforts to expand its retail chains to big cities nationwide, in a sort of reverse-branding attempt.

"Currently most of Dean & Deluca revenue - about 70 percent of it - is from its physical retail locations and the rest from e-commerce and catalogs," said new company president John Richards.

The privately-held company, founded in 1977, would not disclose its sales figures, but said its overall sales increased 36 percent during 1999, with Internet sales up 128 percent.

At Starbucks, Richards was in charge of retail, wholesale and e-commerce operations, as well as worldwide marketing efforts. In addition to his appointment, Dean & Deluca also announced that the San Francisco-based venture firm Hummer, Winblad venture partners, would sink $20 million into the company, and that founding partner Ann Winblad would join its board. The venture firm focuses exclusively on Internet economy investments.

All Things to All People

The specialty world occupied by Dean & Deluca is roughly a $60 billion market. The retailer operates in three primary areas, specialty foods, specialty wine and specialty kitchenware. In addition to the kinds of high-end pots and pans found at stores such as Williams Sonoma, the company also offers caviar, hard-to-find cheeses and specialty packages, such as "Breakfast for Two," a selection of fancy plates and cups, designer napkins, breakfast cakes and apricot preserves for $175.

It's also a competitive minefield, already populated by sites trying to reach food connoisseurs on the Web, including balducci.com, greatfood.com, wine.com and onlinefood.com.

Even Starbucks tried to get in on the act last year and found its efforts weren't worth a hill of espresso beans. The company opened a "lifestyle destination/portal," designed to leverage the Starbucks brand into sales of gourmet specialty foods, kitchenware and even home furnishings. The strategy went flat on Wall Street and the company soon retreated to what it knows best - selling coffee.

"Just because a consumer drinks Starbucks coffee, doesn't mean they will buy a couch or a fancy kitchen appliance from them," said Doug Christopher, a stock analyst at Crowell Wheadon. "They like the latte and that's it. They (Starbucks) took their eyes off the ball. Supporting and focussing on the brand is key."

Richards seems to have learned the lesson from his former employers' mistake.

"People come to us because they can't find what they want anywhere else and we plan to keep it that way," Richards said. "Unlike Amazon.com, we are not trying to be everything to everybody."

Clearly, Dean & Deluca hopes Richards' experience will help the company rise over its competition.

"Richards has worked with much larger operations and it's always good to bring in an executive who has done things on a bigger scale," Winblad said.

She added that Hummer, Winblad only invests in e-tailers that address opportunities of more than $10 billion. With her participation on the Dean & Deluca board, Winbald hopes to leverage her firm's experience in dotcoms (they have investments in 30). Dean & Deluca hopes that other companies in the Hummer,Winblad stable will share the lessons they have learned in navigating the choppy waters of e-commerce.

The interesting thing about click-and-mortar wannabes such as Dean & Deluca is their unique ability to leverage their physical brand presence onto the Internet. Thus, Dean & Deluca plans to expand its retail chain to upscale locations such as Beverly Hills, Chicago and Miami, in a bid to draw users onto their Web site.

"From the Starbucks experience, I know that the power of such brands is built in the physical world and that is going to leverage the Web site, unlike in the case of a pure online retailer," Richards said.

As is being proven more in more in the e-commerce world, it isn't enough just to build a Web presence based on an existing store. It is also proving hard to be a pure Web player, as proven for example, by online drugstores who had to quickly join forces with brick-and-mortar players to survive.

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