02/16/00 FMKT - Internet
Article today at Online Post Gazette
FreeMarkets trying to make life simple for Giant Eagle
Wednesday, February 16, 2000
By Teresa F. Lindeman, Post-Gazette Staff Writer
Giant Eagle Inc., the region's dominant grocer, will team up with online auctioneer FreeMarkets Inc. to solicit bids on everything from equipment for its warehouses to bottled water to sell in its stores.
Major holders
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FreeMarkets Inc.'s largest stockholders and value of their holdings as of Feb. 15:
Glen T. Meakem, co-founder, 3,584,000 shares (including 432,000 options), 10.1% stake, $790 million;
Sam E. Kinney Jr., co-founder, 2,145,600 shares (including 288,000 options), 6.1% stake, $473 million;
CSM Partners, investors, Roger F. Meyer, Timothy M. Inglis, Cordelia S. May, CSM Trust, 2,319,912 shares, 6.7% stake, $511.4 million
Source: Securities and Exchange Commission filing
The strategy is so new that it's hard to predict exactly how much the O'Hara supermarket chain could save. But in the competitive grocery business, even small amounts can significantly boost profit margins.
Pittsburgh-based FreeMarkets has said its process typically saves clients anywhere from 2 to 25 percent on purchases.
In the company's so-called reverse auctions, manufacturers around the world try to win supply contracts by undercutting each other's bids. FreeMarket's clients include the state of Pennsylvania, SmithKline Beecham and Quaker Oats Co.
"It's a wonderful-sounding concept," said Joe Faccenda, Giant Eagle's senior vice president of marketing/merchandising. "We want to see whether, in fact, the size of our business [can be leveraged] in this environment."
Giant Eagle does a lot of buying. The company operates more than 200 stores in Pennsylvania, Ohio and West Virginia. Forbes magazine last year estimated the privately held grocer's revenue at about $4.35 billion.
Faccenda said the experiment won't include perishable items such as tomatoes or lettuce, and it won't affect the grocer's purchases of name-brand products that consumers demand. "We're talking about more commodity-type things," he said.
The goal is to hold the first auction this spring.
For FreeMarkets, the deal is significant because the young technology company has worked primarily with industrial manufacturers. "They will be the first grocery retailer -- I'm pretty sure -- on earth to do online auctions," said Glen Meakem, chairman and CEO.
The two businesses hooked up several months ago, when an acquaintance introduced Meakem and Giant Eagle Chairman David Shapira. "He invited me to lunch at the Duquesne Club," said Meakem.
After the meal, the two men went back to FreeMarkets' headquarters at One Oliver Plaza. Shapira was impressed by a real-time online auction that allowed bidders to see what the competition was offering and respond immediately, slashing prices almost instantly.
"It is a fundamental change in the economy. He understood that immediately," said Meakem.
Giant Eagle has introduced several changes in recent years to take advantage of the latest technology. The company's Advantage Card allows it to collect data on customer preferences and target offers to them. Late last year, it announced that card users would be able to choose coupons over the Internet that would be automatically deducted when they went shopping.
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