From...

by Bernhard Warner

(IDG) -- Linking buyers and sellers of tomato juice and garlic cloves on an electronic trading system may not sound like the sexiest e-commerce play, but it's got all the markings of a big business. That's the thinking of Efdex, a relatively unknown startup that's pouring big money into what it's calling "the Instinet for the food and beverage industry."

The Stamford, Conn.-based company is unveiling the service to businesses and restaurants today, starting with the U.K. (Vendors from across the globe can participate, but for now the buyers must be located in the U.K.) A U.S. buyers' market will be in operation just after Christmas. A third market, in France, will launch some time next year. The slow market-by-market buildout is expected to continue for several years. The company has offices in London and Singapore, with many more planned for the United States and Europe.

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The launch of the Efdex network caps four years and $100 million spent developing the real-time trading system, which comes replete with a vast product database, news feeds and up-to-the-minute pricing information on products varying from fresh strawberries to balsamic vinegar.

In the seller's market, restaurants, caterers and food buyers around the world can shop for the best prices on products. And since the system is completely automated, it tabulates a buyer's expenses as they occur, thus minimizing the time and money spent running that segment of the business.

"We're talking about a real trading system here," says Tim Carron Brown, chairman of Efdex. "It will be just like the financial markets."

And, because many of the vendors still conduct their sales with a telephone, pencil and pad of paper, Efdex will give away computers and souped-up Internet access, at least in the beginning. "It's just cheaper for me to give them everything they need," says Brown.

The market for buying and selling food and beverage products is $11 trillion. The company estimates that if it covers 15 percent of the U.S. market, it can generate $3 billion a year. But the startup costs associated with a global electronic trading market are high. So high in fact that it's unlikely competitors will be popping up overnight.

The company's business plan is not complicated. It will provide the entire trading system to food and drink distributors and retailers free of charge. That means, in some cases, it will be giving away PCs with broadband and eventually satellite Internet connections to restaurants, supermarkets and their distributors. Clients will pay Efdex a monthly fee for access to market data. In addition, Efdex will collect, on average, a commission of 1.2 percent per transaction. The company will also sell advertising, but ad revenue is expected to be small at first, says Brown.

Efdex is building a large media operation to keep the service brimming with timely news about the food and beverage industry, similar to what Bloomberg has done with its financial information terminals. Efdex operates a 60,000-square foot production studio outside London to develop multimedia news packages for its service. "We already have reporters and producers producing 12 hours of video a day," says Brown, a veteran of the magazine industry. Brown is the founder of the English trade publication Marketing Week.

Some of Efdex's early investors include Bill Cox, whose family owns a controlling stake in Dow Jones, and Canadian brewery heir Ian Molson. The company is in the process of raising $50 million in financing, and plans to file for an IPO in the United States by the end of the first quarter next year.