A grocer without groceries: Rich Tarrant and MyWebGrocer

Back in the Wild West days of the Internet, before the dot-com bubble burst in 2000, new e-businesses were flying off the IPO shelves. They were supplying your pet with toys, booking your vacations and helping you trade stocks. The general feeling was, "If it moves and makes money in a bricks-and-mortar setting, let's throw it on the Internet and see if it sticks."

Of course, only a few stuck (Amazon and Google spring to mind). The rest slid into oblivion while quite a few people lost their shirts.

One of the big ideas of that halcyon time was on-line grocery shopping. Most of the companies trying it didn't last long, but by dramatically altering the business model - by eliminating groceries, of all things, and focusing on software - MyWebGrocer in Colchester is doing just fine.

This fast-growing, privately-held company was founded in 1999 by its CEO, Richard E Tarrant, Jr., 41, and his brothers Jerry, 42, and Brian, 38. Last year it had over $10 million in sales and doubled its employees to 60. It expects to see significantly more growth in 2009.

"We'll see somewhere between a 30 and 40 percent growth rate, I would guess," Tarrant said.

If Tarrant's name sounds familiar, it's because entrepreneurship runs in his family. He's the son of the famous Vermont entrepreneur Richard E Tarrant, who founded the health care software technology company IDX, now GE Healthcare.

Politics also runs in the family.

"My grandfather, Fred Fayette, was a state senator who ran for US Senate as a Democrat - and lost," Tarrant said. "As you know, my father ran for US Senate as a Republican - and lost. There may not be a lot of people who can say that they have family lineage that has run for office on both sides of the aisle - unsuccessfully! Maybe we are best suited sticking with business."

Seated behind his desk, Tarrant is as casual a business executive as you can imagine. One of the few things decorating his office walls, besides a big whiteboard, is the very first check his company ever received: $94.50 from Geisler's Supermarkets, in August of 2000. Tarrant is sandy-haired, handsome, smart, open, agreeable and funny. He has a sunny, outdoorsy air about him that contrasts strongly with the snow being whipped around by gusts of wind outside his wraparound office windows.

Tarrant, who is 6'4", was a basketball player at the University of Vermont, where his coach was Tom Brennan, now retired and doing sports commentary for ESPN. The two men are still close. From the beginning, Brennan said, Tarrant was "a giver and not a taker."

"It's important I say this the right way," Brennan said. "But I coached him and Brian, and the one thing that jumped out at me was that these were arguably the wealthiest people in the state. At least, their parents may have been the wealthiest parents at UVM. But these kids never held their hand out. They never asked for anything. They never expected anything, as a lot of people do who are well-tended. And they were really a joy to coach. I was so impressed because Rich wasn't physically that skilled. But he was so driven and so aware of his teammates and how to make things better that he was invaluable in what he brought to our team. He was really a competitor. He raised the level of practice. He was fired up every day, and he lifted a lot of people when he did that. And I'm so proud of what he's done. Those kids, they were out of a great stable but they went out on their own and were successful."

Speaking of stables, one of Tarrant's hobbies is getting up close and personal to Western history. With a group of friends, one of whom is a Western historian and guide, he sometimes puts on Western gear, gets on a horse and takes "some obscure trip like riding through New Mexico taking the same route Billy the Kid took, or going to Arizona and seeing the graves of Pat Garrett and all these outlaws. We all go and pretend we're cowboys."

Getting back to groceries, one of the reasons MWG is thriving is because it has nothing to do with bread, cereal and coffee.

"We're an Internet software company," Tarrant said. "We don't touch a single grocery."

The problem with early grocery-shopping startups was their warehouse delivery model, Tarrant said.

"They ventured out to build warehouses where they could effectively compete with the local grocers," he said. "They were trying to create a supply chain, build a brand, and get consumers to buy their groceries."

The Tarrant brothers reasoned that it didn't make sense to build warehouses, buy trucks and start from scratch.

"There's already a whole infrastructure in place," Tarrant said. "There are 36,000 conveniently located warehouses all over the US. They're called supermarkets. And they're on Main Street, or right in the center of their communities. They have a brand, they have a supply chain, they have a customer base. They have everything they need except the technology to offer online shopping. We thought a smarter approach might be to enable the local supermarkets to offer e-shopping to their customers. That way you not only get the advantage of the infrastructure, but you have a further reach than if you had to build a warehouse in every high density area of the US."

So now MWG is the Internet arm for about 90 supermarket chains, mostly in the Northeast - including Shop Rite, Lowes Food Stores and Big Y. (It has yet to snag a chain in Vermont.)

"Whether it's offering on-line shopping for our customers, or running their promotional e-mails, managing their Web site, making their weekly circular digital so people can interact with it on line, pretty much anything retail grocers need that is customer-facing on-line, we provide," Tarrant said. "But we're a software company, We don't have groceries. We have server farms and smart engineers."

So far, contacts with the West's large chains, like Kroger, Supervalu and Safeway, have been elusive.

"It's always the plan in business to get a huge customer," Tarrant said. "But you don't build a business model predicated around the success of that. You build a business model that works, get the customers you can, and when the time is right, get a very large customer. But you have to make sure you're of the size and experience and have the resources to go ahead with a large customer. If you land a large customer early in your business cycle, and you cannot handle them, it can ruin your company. You have to build yourself up to that. Certainly we're at that point now, but it also takes longer to sell a big organization than to a 20-store family owned chain. You can usually get to the founder or CEO of a small chain fairly quickly. Kroger has $65 billion a year in sales and is a publicly traded company. They have processes and procedures, and you can't get to them in a timely manner."

While always looking to sign up more chains, MWG's growth plans include a lucrative new idea: advertising. Now that about 3.5 million shoppers a month are using the site to buy their groceries, advertisers are naturally interested in attracting these eyes and pocketbooks. MWG claims it is now the largest grocery advertising network in the US, boasting over 170 branded advertisers.

"Consumer packaged good companies can now buy advertising within the tools we have deployed across the retailers," Tarrant said. "So if someone is shopping for breakfast cereals, they may see an ad for Kellogg. If you're a consumer interested in that product, this is a quick route to get it. And from a business standpoint, Kellogg's very much wants to have that location on-line, because the shopper has been pre-qualified as a consumer buying grocery products who, at this moment, is in the (virtual) breakfast aisle."

And if you think that's as targeted as advertising can get, think again.

"We can be even more targeted, because we know what you have bought in the past," Tarrant said.

There is, however, one downside about this growing company, and it has to do with the State of Vermont. While it's rare - and special - to have the second generation of a successful entrepreneurial Vermont family creating a Vermont company on the cutting edge of technology, Vermont hasn't got the technology in place to host such a company. So MWG's servers are across the border, in New Hampshire.

"It's embarrassing," Tarrant said.

Work For What You Want

Tarrant was born and raised in Vermont, the second of five children - besides his two brothers, he has two younger sisters. His father founded and ran IDX. His mother was a teacher until she left the workforce to ride herd on her growing family.

"Then her full-time job was keeping us under control," Tarrant joked.

All the Tarrant children were encouraged to work at an early age.

"If you wanted any spending money in our house, you had to work," Tarrant said. "So we mowed lawns, delivered newspapers, shoveled driveways and sidewalks - all the usual jobs kids have. Then, as we got to be teenagers, I cleaned golf carts at the country club and worked on the ferry for Ray Picor. They weren't glamorous jobs, but they taught us good lessons. The biggest thing is that you have to work hard to get what you want. It's not typically handed to you. That was something that was really driven in by our family. If you want something, great, work hard for it and make it happen. And if you stay in line with that, you'll be successful."

Although the Tarrant kids had the usual bank accounts and passbooks, their real financial training came at the dining room table.

"We probably learned more about business there than at any class through high school or college," Tarrant said. "When situations would evolve at IDX, somehow they would come up at the dinner table. We'd get some insight into what the situation was and why, and how it was handled, and how it turned out."

Tarrant went to Rice Memorial High School and then on to UVM to study business.

Coach Brennan likes to tell the story about the time the team was about to have its first winning season. It was the fourth quarter, with just about a minute to go, with UVM leading Dartmouth. But the New Hampshire college was coming back strong and feelings were running high.

"Rich is in the game, and he does something stupid," Brennan said.

"And I got up and started really carrying on. I turned to the bench and said, 'Get him out.' Well, we win the game. I am elated. And he's in the locker room kind of pouting. I was really disappointed in him. The next day I go to practice, and he's still moping around. Finally we go to my office. He says, 'Tom, I love you, and I have a lot of respect for you, but if you ever treat me like that again I'll quit this team in a minute.'

"Was it because I took him out of the game? No. 'You've taken me out of the game a hundred times,' he says. 'I knew it was a bad shot, and I'm running back down the floor, and I hear you cursing me and kicking the stands. Now, I would run through a wall for you, and this is the way you're treating me when I make a mistake?' I said, 'You know what, my man. I owe you an absolute apology.' I marched him back to the locker room and told everybody that I had been selfish. It was a great lesson to me."

While he was in college, Tarrant worked summers for a relative, John Crabbe of Vermont Tent Co.

"I've known him since he was an infant," Crabbe said. "He and his brothers are very hard workers and great employees. Richie, though, was unique. In his last year of college, he had to do an analysis of a business, and he did ours. Many of the things he came up with in the analysis we started using. It really transformed our business. He helped our company grow. He's an astute businessman and one of the smartest men I know."

After Tarrant graduated he headed for New York and Wall Street. Why not stay at home and work for IDX?

"Father had a rule that none of the kids could come work for the company," Tarrant said. "He said, 'No. You didn't build this company. I built this company. If you guys want to build a company, go out and build a company. But you don't have employment here.'"

Tarrant regards his father's philosophy as a great lesson.

"If you think that you have a job waiting for you, you don't work quite hard for the grades," he said. "You don't work quite as hard at the job, because you have something that's handed to you. Besides, it would be hard for a child to follow a father into his company. No matter how good you are, you'll have plenty of people say you're only there because... I think it was wise on a lot of fronts."

Starting Businesses

On Wall Street, Tarrant brokered institutional treasury bills.

"It didn't pay nearly what you read about today in the papers," he said. "But it was a good starting job and it gave me an insight into how Wall Street operates."

The entrepreneurial bug, however, was anything but dormant.

"I remember I was taking the express train from the Upper East Side to Wall Street at 5 in the morning to cover the end of the London trades," Tarrant said. "This was 1990 or 1991. And I read an article in The New York Times about assisted living. I immediately knew that the niche between home and nursing home care was going to be a very big business."

So Tarrant and his brothers started Amicus Healthcare Living Centers, which built, owned and operated assisted living facilities in Massachusetts and Connecticut.

"They had a specific application for those folks who suffered from various forms of dementia - like Alzheimer's and Parkinson's," Tarrant said.

Starting the company involved learning about the industry, which led, Tarrant said, to one of his few miscalculations.

"In order to learn the business, I spent some time studying the industry," Tarrant said. "Then I approached a company providing assisted living and attempted to get the sales and marketing job. The facility was 50 percent occupied at the time, unprofitable and needed the help. The business model is such that it is usually the last 20-25 percent occupancy that get the business into the black. So I proceeded to get the job, and worked to fill it while I was learning the business from the inside - with the idea that I would go into it for myself. Once I was comfortable that I had learned enough, I approached the owner and asked if he would be interested in selling me the facility. His response? 'Too late. If you had asked me when we were 50 percent occupied I would have in a minute, but now that we are making all this money - no way!'"

Still, the experience set him on the path to his own health care company. When the Tarrant brothers sold Amicus in October 2005 for an undisclosed amount, it had grown to over 300 employees.

"We reached a threshold where we would have had to hire a lot of layers of management to expand," Tarrant said, "And, unfortunately, attorneys had decided that this is a good place to work the process of litigation for settlement dollars. It became a very litigious business. We would regularly get sued for issues that were not really relevant. Most health care companies would settle anyway, and we refused. So we kept fighting them, and we got to the point where we were better off selling to a bigger company with in-house attorneys to fight those battles, as opposed to three Vermonters."

On-Line Groceries

Tarrant stayed in New York for 15 years.

"It's only the last three years that I've moved back to Vermont," he said. "I didn't want to raise my daughter in the city."

In 1999, while he was still involved with the health care company, Tarrant started working on MWG.

"I founded MyWebGrocer in New York, but I did the hiring up here in Vermont," Tarrant said. "I knew a lot of people here, so I could find someone I trusted to help me with a pilot. The guy who helped me build the prototype had his own software company, but now he's here as my COO. Talk about how things go full cycle."

Tarrant didn't need to look for outside capital.

"Funding an Internet company back in 2001 would not have been the easiest thing in the world," Tarrant said. "But we were able to use the proceeds from the health care company to fund the organic growth of MWG."

Why an on-line grocery company?

"We were seeing the Internet evolve," Tarrant said. "It was becoming a powerful force. We - myself and my two brothers - spent a number of months discussing how could we use this exploding technology to make people's lives more efficient. We sat around a table and bounced ideas around, as we did from time to time. I believe it was my older brother's wife, with two kids at the time and another on the way, who said, 'Hey! Why can't I get my groceries on line? Why can't I order my groceries from Shaw's down the road?' And we said, 'Yeah, why can't you do that?' And as with all good ideas, it incubates for a while, and you can't quite throw it away with a reason why you shouldn't do it. And when it sat enough, finally you say, 'Hey, there might be something here."

His brothers were busy running the health care company, so at the beginning only Tarrant was involved in the day-to-day operations.

"It's only recently, in the last year or so, that my older brother has been in day-to-day doing HR, administration work, payroll and all of the back-office stuff," Tarrant said. "My younger brother is not involved in this yet. We don't have a conflict of roles. In the projects we've done, what we've always been good at is allocating a role to someone and letting them make the decisions. Because you can't try and make all decisions by consensus or committee. You won't get anywhere. We'll consult as a board, but day to day, you can't have more than one person trying to make decisions."

Is The Future On-Line?

Why do we go to grocery stores? Because we've always done it. But Tarrant is convinced that on-line shopping is the consumer trend. We buy our books on-line, our music on-line and we get our news on-line. So why not get our groceries, too?

"You have to eat, and you need grocery products carried in grocery stores to do that," Tarrant said. "But you don't need to be going into the store. There's a segment of the population that does not want to be walking up and down the aisles picking out their groceries. Certainly there are some who do, and that's what the stores are for. But there's another segment who would rather put in their order at 11 at night after the kids are asleep and drive by the next day after soccer practice to pick it up. This is a viable alternative. There's an increasing demand for this from the consumer level."

The MWG demographic is young and computer-savvy. Their top target is 28 to 45 year-old and female, often a working mother.

"And if you're in that demographic and you're working, you're already using a computer," Tarrant said. "And these people are also the most time-pressed. What they're trading off is the hour it might take them in a store to go grocery shopping on a Saturday or Sunday or an evening, typically with kids in tow. Ask a lot of mothers. That's not usually not the most enjoyable time of their week. Now they don't need to do that. They can save some time and use that hour or hour and a half for family time or something more enjoyable."

MWG salesmen call on supermarkets and go to trade shows.

"We're fairly well-known," Tarrant said. "We've been in the trade journals for many years. We haven't come across any retailer who doesn't think they have to have some kind of presence on line - if nothing more than a Web site with a store locator and phone numbers. The more advanced retailers are identifying that there's a segment of the population that would prefer to order on line. They come to us and say, 'Look, we're not going to build out this technology. You know how to do it, and we'll contract with you to run it for us.' And there's a whole spectrum of retailers in-between. Our goal is to make sure that wherever they are on the continuum of embracing the Internet, we'll have a product or service for them. With the idea that as they get more advanced, we'll have advanced products."

Soon the company will have a software application for buying groceries that works on mobile phones.

"You could argue that it's only the younger generation that's using mobile," Tarrant said. "But if you fast-forward seven or 10 years from now, you're going to be ordering your groceries through your mobile device, whether it's a Blackberry or an Apple iPhone, and hopefully it will be our application that runs it."

Will mobiles make computers obsolete? Not really, Tarrant said.

"Mobile devices by definition have to be smaller," Tarrant said. "And you can't work a spreadsheet on them. It would be hard, for example, to write an article on a mobile device."

A new product already in service is Order Express, which sends MWG's customers e-mail shopping lists.

"People can check off the items they want and send the lists in," Tarrant said. "When you go to the grocery store, I'd be willing to bet that 95 percent of the things you purchase you purchase over and over - your toothpaste, your paper towels, your cereal. Most people don't change those every week. You know what you like and you reuse it. Maybe that last 5 percent may vary - you're having someone over for dinner and having fish, so you'll get some of that, or you'll want a nice white wine. So for me to send you the e-mail with things you repeat, it's relatively easy to for you to say. 'Yes, I need toothpaste and paper towels, and click click and thank you very much."

An Acquisition

In September of 2008, MWG bought out its closet competitor, Buy4Now, a Long Island company that was a subsidiary of one from Ireland.

Buy4Now was founded in 2000 to provide software and services to retailers in Ireland who wanted to sell their products online. In 2004 it entered the US market to bring that software and those services to US grocers.

"It's exactly the same services we do," Tarrant said. "We were fascinated when we went to Ireland to do due diligence. They used the exact same code base, the exact same data bases and they had the identical tools that we built. They even called them the same things. It was amazing. We started talking to them about using some of our other tools for their customers, because they only did e-commerce. One conversation led to another, and rather quickly I suggested, 'Why don't we purchase you?" They're still in business. There are nine employees on Long Island now who are effectively working for MyWebGrocer. And now we have another solution to offer our customers, while we can take our tools and offer them the Buy4Now customers."

Advertising

It was clear from the start that advertising was going to be a large and natural part of this business, but MWG had to wait until it had built up a strong customer base.

"We've known this was an area we were going monazite for seven or eight years ago," Tarrant said. "But in order to have a successful advertising offering, you have to have enough breadth of consumers using your tools. We've sort of crossed that threshold now, which makes it viable. Now we're there - a short nine years later."

MWG is a business model that can travel across retail designations. If you can do your supermarket shopping on-line, why not do your drug store shopping also?

"We might move in this direction, but right now we are plenty busy keeping focused on our current target: grocers," Tarrant said.

Doing Business In Vermont

Doing IT business in Vermont has its challenges. MWG is in Colchester because Tarrant grew up here and his family is here. But his servers are in New Hampshire.

"Maybe if I was making a pure business decision, I wouldn't be in Vermont," he said. "I think Vermont would be a great place for business, especially software companies. There's a great creative population here. The environment - the lakes, the mountains - attracts creative people. I think if there was some initiative put toward it, we could create a mini Silicon Valley Northeast for great creative software companies. But it's not going to happen just because we want it to. You have to make those things happen. I don't think that right now the state of Vermont wants it bad enough."

Fundamentally, Vermont has to create a better technology infrastructure.

"New Hampshire has a better telecommunications backbone," he said. "It gives you a redundancy of multiple lines and a decent co-location facility. Redundant power, air conditioning - all the things you need. There isn't a good one here. So we moved. There's got to be an initiative here that understands that. Redundant lines all over the state of Vermont would go a long way toward making it easier for software companies."

The state could also assist companies in recruiting people to come to Vermont, Tarrant said.

"Big companies like GE Healthcare and IDX have infrastructure that can recruit from all over the country," Tarrant said. "That's wonderful for small companies, because we poach those people. That's because we're too small to be recruiting from all over. And Vermont is full of one- and two- and three-people companies. Wonderful. They take the initiative and get started. But those are the extremes. There's also a ton of companies in the middle, with 20 to 100 employees, good and solid companies, and they need these qualified people. But they don't have the infrastructure to recruit them. So they either have to leave or open other offices someplace else to get them."

Tarrant noted that Senator Patrick Leahy (D-VT) recently announced a $2 million grant to fund UVM's data center. But the center is not open to the public or to business, Tarrant said.

"It was publicly stated that the hope is that this will help to lure top scientific talent - specifically educators - to the school," he said. "And I am sure it will help. The question that I ask is this: 'does not the same principle apply toward attracting business?' The answer is 'Of course it does.' But where is the effort toward this type of assistance to the business community?"

Vermont's affordability is another issue that concerns Tarrant.

"This is an expensive place to live," he said. "If I'm going to recruit someone to work here, I have to compensate them for their expectations of living, which increases my costs. That's a fundamental issue. I see how we got here. Real estate taxes have been carrying the load for the state. But you can't live on that as a state. It makes it harder for guys like us to recruit people - because they need more pay."

Tarrant wouldn't identify himself as either a Republican or Democrat, but he shares Governor Jim Douglas' belief that the state is somewhat anti-business. He mentioned Act 250, which he said makes development "onerous," a bill passed by the Legislature - and vetoed by Douglas - to impose a tax hike on Vermont Yankee; and the Burlington City Council's recent discussion about denouncing Burton Snowboards for its recent controversial product line.

"Business people see these things and, over time, the perception gets created that the environment is 'unfriendly,'" he said. "And perception can become as dangerous - or more dangerous - to the business climate in a state than reality. I would expect that you would hear this from other business people as well. All that being said, I believe Governor Douglas has been doing a very good job under the circumstances."

Business is essential to the state, Tarrant said.

"Without businesses, and therefore employers employing people, you don't have a tax base," he said. "And without a tax base, you can't provide all the wonderful services that in a perfect world you would want to provide. That is the fundamental building block: taxes. Employees pay taxes, employers pay taxes, employees buy houses and the houses carry property taxes. That's where it starts. We should be encouraging businesses. If I ran the zoo, I'd recognize that there's some pain, but I would immediately start investing in mechanisms to get business to grow here. If you have to run a deficit, do it, but know that in four or five 10 years down the road our tax base will increase and we'll pay it off."

The Future

Tarrant got some political experience working on his father's Senate campaign, but he doesn't see politics in his future.

"I don't have any plans to run for anything," he said. "I'm very busy doing this. It's certainly a full-time job. If you want to be in politics, you have to commit to it and be willing to make some sacrifices. Or a lot of sacrifices. So, not at this time."

Another thing Tarrant doesn't foresee is taking MWG public.

"I think that's an option that will present itself if it's appropriate," he said. "Right now, we're focused on building products and serving our customers and hiring the right people we need. We have a lot of great people here, and it's fun to see them being creative. So I don't have a burning desire to take this public."

Going public forces business owners to be shortsighted, Tarrant said.

"You have to be looking at the next quarter and then the next quarter, which is really detrimental to building good solid businesses," he said. "Sometimes, good solid businesses require focusing on something six, 12 or 18 months down the road that will put us in a better situation. CEOs who try and do this get enormous pressure from shareholders, from Wall Street, from all kinds of things. It's just easier to play every quarter as it comes, which leads you to massive problems. I think that would take some of the enjoyment out of the business."

Also, CEOs of public companies are now held somewhat liable for mistakes.

"Quite honestly, there are a lot of laws in place now," Tarrant said. "CEOs are personally liable for all kinds of things. When you get to the size of doing an initial IPO, you simply cannot keep track of every accountant and salesperson to make sure if they're lying about something. But the CEO has to sign off on that. That's an exposure that if you don't have to do it, why would you?"

Tarrant's favorite word for doing business is "fun." And that's why he does it.

"It's a wonderfully complex puzzle, the world of business," he said. "Think of all the variables. There's product development, which the engineers are doing, there's sales and the process for selling, managing people, clients. It's a very complicated puzzle that's constantly throwing new challenges at you. And that's fun. Solving them is fun. Of course, it's not always fun when it keeps you up at night."

Joyce Marcel is a freelance writer and author from Dummerston. Her new book, a collection of her columns called, "A Thousand Words or Less," is now available. Learn more about her and how to order the book at her Web site: www.joycemarcel.com.