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B2B exchanges arm for food fight
By Paul Elias
Redherring.com, June 23, 2000
Rod Heller, chairman of Web exchange FoodUSA.com, thought competition from six industry heavyweights would turn into a giant food fight. But so far, he's done nothing but shadow box.
The day before his Web exchange for buyers and sellers of food products went live in April, the six biggest meat, pork, and poultry producers in the country announced they were forming an exchange of their own. FoodUSA has so far generated revenues of $500,000 since its launch April 12, Mr. Heller boasts, whereas the competing exchange has yet to process a single transaction.

"They haven't done anything since [their announcement] except freeze out venture capital investments in companies like mine," says Mr. Heller, who spoke on a panel at the Online Exchanges 2000 conference in San Francisco on Wednesday. "I don’t know what their play is."

The plans for a new exchange was announced by a group of industry titans that includes Smithfield Foods (NYSE: SFD), IBP (NYSE: IBP), Cargill's Excel, Tyson Foods (NYSE: TSN), Gold Kist, and Farmland Industries. The exchange, which was touted as a stand-alone company, still doesn't have a name, a firm launch date, or a CEO.

"Other than the announcement, I haven't heard much about it," says Michael Miller, the director of investor relations for Smithfield Foods. "They're still in the concept stage," says a Farmland spokesperson.

BOATLOADS OF BUTTS
While old-economy companies continue to conceptualize, multitudes of startups are already in business. Mr. Heller incorporated FoodUSA in Madison, Wisconsin, last year and secured $3 million in financing from local VCs. Sellers post their meat and poultry products on the site, and buyers, mostly grocery and restaurant chains, bid on the product. FoodUSA charges a half-percent fee to the sellers.

It's a crowded field. Other startups competing for the same customers include Foodexchange.com, which will begin operation this fall, and Sellmeat.com, which is online and selling. Sellmeat.com, for instance, offers 12,000 pounds of top butts for $3.80 a pound.

The delay in old-economy companies creating working online exchanges isn't unique to the $100 billion-a-year food industry. Airlines, automakers, railroads, and other companies in various other industries have all announced ambitious plans to form online consortiums that are supposed to dramatically cut costs by streamlining the procurement process. "There has been little impact on the way business is being done," says Philip Ross, an online exchange consultant who sat on the panel with Mr. Heller.

FOOD TRUST
Whether the inactivity is by design or bumbling is open for debate. Critics such as LeaseExchange.com CEO Aaron Ross, another panelist, says old-economy companies give little thought to business plans when announcing online alliances. "A lot of consortiums were formed to cash in on the IPO craze," he says. "They said, 'Let's put out a press release, scare some people off, and go public.'" Others maintain that the old-line companies have a sincere desire to save on costs through online exchanges but have an entrenched corporate culture preventing them from moving quickly.

Regardless of their intentions, the online exchanges formed by old-economy companies have caught the attention of the antitrust police. Assistant U.S. Attorney Joel Klein, head of the antitrust division, said last week that he's looking into the food consortium.

Mr. Klein wrote a letter to Minnesota state lawmakers objecting to the consortium that the Department of Justice "is aware of this new venture and is taking steps to determine if its formation or operation is likely to have anticompetitive effects on producers and consumers." The six food producers control 65 percent of the beef market and 55 percent of the pork market.

Discuss the transformation of industry sectors in the Industry Talk forum, or visit the discussions home page.

©1997-2000 Red Herring Communications. All Rights Reserved.

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Company Profiles

FoodUSA.com

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