Peapod Grows in Hoosier State
Online grocery services have come and gone, but Peapod remains.
The company, which was founded in 1989, recently expanded its coverage area
to include Marion, Hamilton, Hendricks and Johnson counties in Indiana.
“We started this 20 years ago, and over those 20 years we’ve [homed]
in on how to do this very, very efficiently,” Thomas Parkinson, co-founder
of Peapod, told the Indianapolis Star. “Even when we’ve had tough
times, we stick it out.”
Peapod’s move into Indiana comes even though others
have failed in previous attempts to make online grocery work in the state.
“It’s been tried all over the map, and it’s never done well in Indiana,” Joe
Lackey, president of the Indiana Grocery & Convenience Store Association,
told the Star.
Mr. Lackey said Hoosiers are most comfortable shopping
for themselves when it comes to fresh meat and produce.
“They want to touch it, feel it, hold it, smell it and make sure it’s
OK,” he
said.
Discussion Questions: Why has Peapod succeeded where so many others have
not? What do you see for Peapod’s future and that of other online grocers?
I’ve met with folks at Peapod about their mobile channel efforts and so have some recent context for their success. What impresses upon visiting their offices outside Chicago is that it appears to be as much a logistics business as a marketing one. In fact, in their space, I’m not sure they have any competitors. Instead, they simply compete with other ways consumers buy groceries. In any case, they must have a really outstanding back office operation given the slight margins surely associated with their service. The fact they only recently moved to create mobile versions of their service for various devices seems to back that up.
In order to succeed at the grocery delivery business, you need efficient logistics, a customer centered business model and philosophy, and the ability to stick with a market until consumers expand their adoption of the grocery delivery service. It is possible, that “the ability to stick it out,” is the greatest success factor of all.
History has proven that consumers require time and nurturing to accept that delivery groceries are the same (or higher) quality than the ones they buy at the store, and that they do not pay appreciably higher prices for those products. Once they come to realize the inherent benefits of delivery groceries, they become adopters.
There are a number of reasons people choose online grocery shopping, including maintaining a constant grocery wish list and accommodating difficult schedules. These factors are location-agnostic, so Peapod may have broad growth potential. (I do not want to order online, but I would like someone to come to my house to put the groceries away….)
I have never used an online delivery service, but have used this question as an opportunity to explore the comments of Peapod users.
There seem to be several things that Peapod users tend to value. They are all impressed by the produce. Peapod apparently offers warehouse tours that reinforce their commitment to the quality of fresh products. Users also seem excited by the filtering and couponing offered on the website. Users can meet special dietary requirements by filtering on product content. Peapod seems to reward their best shoppers with coupons that make the delivery cost small or nothing.
Of course Peapod is still only available in certain areas, but I think that by limiting their network and operating out of a warehouse instead of doing in-store picking, they have been able to maintain high quality for the consumer. This has apparently paid off, enabling them to survive where others haven’t.
It is all about the operations. Online grocers have a huge operational advantage over brick & mortar supermarkets. No stores, no fixtures, no labor, no overhead, a fraction of the inventory carry. Map the end-to-end cost structure of supermarket operations. Apply cost to each segment, then take out the segments with the greatest cost and you are looking at what the delivery guys are dealing with.
What the delivery operations must be is efficient and technology makes them more efficient every day. Use Amazon or Diaper/Soap.com as prototypes. They efficiently handle 100,000 SKUs in their distribution centers and pick products on an individual customer basis. That makes the grocery challenge easy by comparison.
The other side of it is providing service to the customer. Once a customer realizes how much easier their life can be with online ordering and personal delivery, it would be hard to go back. The future is here, not in the supermarket.
Online grocery purchasing and delivery dominance is only a matter of time. Soon, very soon, someone (Amazon? Walmart?) is going to figure out that the logistical costs are worth the market domination and go ahead and take the full plunge. And boy, I cannot wait. Neither can the customers we talk to in grocery stores.
This shift will force traditional grocers to make their stores much more interesting on one hand and or pick up and delivery centers on the other. Hurry up, Bezos!
I can guess! Under promised and over delivered! Run as a service and not as a Fortune 500 company. Slooooow growth model – only trying to chew as much as they can bite off. They really understand their business model but aren’t locked into their business model. Adapt before expanding! All of the things that promote failure seem to have been left out of the equation. The most important thing is they don’t listen to MBAs or consultants – they listen to their customers!
Two factors enable Peapod success where other e-grocers have fallen: Continuity of vision (i.e., the founders are still running the show) coupled with deep pockets and forbearance of its parent company (Ahold).
It’s notable that more than 15 years have elapsed since online grocery shopping was introduced by Mr. Parkinson and colleagues. Many celebrated players have launched, burned fast and fizzled (Webvan and Streamline come immediately to mind).
Peapod has doggedly hung in there to remain one of maybe two firms with a sustainable business model. Peapod succeeds as an extension of Ahold’s physical grocery business. The other survivor, MyWebGrocer, powers a number of supermarkets’ online businesses.
Online grocery shopping with store pickup or delivery has a role to play in the market for some shoppers on some trips. Peapod has patiently worked out this model and is likely to persist as its one true consumer brand.
I’m not so sure they have succeeded. Just because they haven’t filed for bankruptcy like many others doesn’t mean they are successful. Most online grocers don’t have a sugar daddy holding company the way Peapod does. Eventually I think Peapod will succeed if they can hold out for the long run.