Peapod's
Andrew and Thomas Parkinson have taken the grunt work out of food shopping with
their online grocery delivery service. Now the company's in the express lane
with a successful IPO and their millionth order logged. Read on to find out how
the brothers' insatiable appetite has fueled Peapod's growth.
“If you have tried to do something and failed, you
are vastly better off than if you tried to do nothing and succeeded.”
(Anonymous)
Andrew Parkinson can vouch
for the validity of this inspirational quote. Parkinson, the CEO and co-founder
of Illinois-based Peapod, Inc., a 100,000-plus member online
grocery service, had a phrase like that one in mind when he started the company
in 1989 with his brother, Thomas. It’s probably a good thing he kept that
phrase in mind. Although Peapod is now a very well-known player in the Internet
grocery delivery market — in fact they bill themselves as America’s leading
Internet grocer — the early years were challenging, and the future uncertain.
Andrew and Thomas Parkinson
were no strangers to entrepreneurship when they conceived the idea for Peapod.
During college, the siblings created a beer-keg carrier that they sold to
fraternities, and also started a T-shirt business. Later, they both worked at
Procter & Gamble, Andrew in marketing and Thomas in sales. Thomas then left
P&G to start his own technology company. Through it all, the two yearned to
start what Andrew calls “a real company.”
But why advertiser-supported
online shopping? Says John Furton, vice president of operations, “The grand
inspiration behind the business was a study that [the Parkinsons] had seen in American Demographics Magazine, which indicated that grocery shopping was the No. 2 most-dreaded chore in
households. Andrew’s original premise was, ‘Gee, there’s a service that
consumers would probably pay for.’" Furthermore, Furton says, the duo
realized that they would be selling the products of the largest advertisers in
the world, which would give them an instant entrée into the world of online
advertising.
It’s hard to remember a time
when the Internet wasn’t a fact of everyday life for many, if not most,
American consumers. In 1990, when Peapod (whose original name was IPOD,
Information Product on Demand) began testing its service, however, most people
did not know that the Internet existed — let alone that it could be used as a
communication tool. To use its then software-based services, Peapod’s customers
required an education about the online world. Says Furton, “[At that time,] 13
percent of households had modems … we actually sold modems as part of the
service because a lot of people didn't have them." In fact, the company's
early literature actually had to explain what a modem was.
Peapod’s grocery service has
since evolved from the software-based system to one that allows consumers to
shop over the Internet at its Web site (the option of using Peapod’s
proprietary software still exists). Parkinson saw the move to the Internet as
an opportunity to lower fulfillment costs and at the same time increase
quality. By using the new technology, they were liberated from numerous
overhead costs, including the need for telephone operators. “Before we used
technology,” Parkinson continues, “we couldn’t do it at a price consumers were
willing to pay.”
The new technology works
like this: Once clients sign up for Peapod's service, and, assuming they have
the necessary bandwidth, grocery shopping can start immediately. Customers have
access to most regular grocery and pharmacy items, and can take advantage of
in-store sales that their suppliers are carrying. They can select groceries
from their home or work computers, using a visual or print interface of their
choice, and have to enter credit card information only once, upon registration.
After that, each delivery is paid for by the recipient when it is made.
In many of Peapod’s delivery
service areas (which include Boston, Chicago, San Francisco, Dallas, Columbus,
Ohio, Houston and Austin, Texas, and New York/New Jersey), there is only a fee for the service if groceries do not exceed a
certain price. In Boston, for example, with a grocery purchase of $60 or more,
the Peapod online ordering and delivery service is free.
What this system lacks in
ambience, it makes up for in the convenience of price and ingredients
comparison. It is very easy, for example, to rank different brands of peanut
butter by cost-per-ounce, or check out sales on each brand at once. Customers
can also view several brands ranked by fat or sodium content, for example, or
on the basis of whether they contain certain ingredients. Customers can use
this system to follow low-sodium or Kosher diets, or to ensure that items don't
conflict with a family member's food allergies.
When the ordering process is
complete, customers’ orders are hand picked by Peapod personal shoppers at the
supplier store. The groceries are then packed in crush-proof, and in some
cases, refrigerated, bins for delivery.
It all sounds like a good
idea, in theory, but how many shoppers are willing to entrust their most
personal errands to strangers? The customers buy into the concept, says Furton,
for reasons that include convenience and smart shopping ― not to mention
the fact that they guarantee that perishable items will be delivered in the
quality the customers are accustomed to.
To get the full effect of
the convenience angle, picture yourself on your weekly shopping trip. When you
walk into the store, there is a cart in front of you, with your name on it.
Already inside the cart are the groceries that you buy every week for your
family. Now all that’s left is a quick trip through the grocery store to gather
the remaining items for the week. Suddenly, your shopping trip turns into a
leisurely 15-minute mosey instead of an hour-long aisle-to-aisle trek. With a
personal list already assembled in this way, you not only remember to make all
of your regular purchases, you cut down on impulse buys that can happen as you
wander the store. Now, add in the fact that you’ve never left your home or
office to make this trip.
Consumer fears of online
shopping are allayed by allowing clients to call in their credit card
information if they prefer, coupled with an extensive direct-mail campaign that
outlines in detail the encryption methods Peapod uses. Furton states that once consumer
fears are allayed, online grocery delivery services represent an enormous opportunity
– over $400 billion – for retailing. Everybody needs to shop for groceries,
says Furton, and “as a product they're easy to sell online because they're
ubiquitous. [Groceries are] not like clothing or music; you don't need to see,
feel or touch a box of Cheerios. You just need to know sizes and prices. I
think that it will be a very easy transition for consumers to leave that
brick-and-mortar grocery shop.”
For Peapod, the practice
seems to be steadily gaining acceptance: They logged $32 million in revenue for
the first two quarters of 1998, and in July 1998 they nabbed their millionth order,
a milestone reached before any other Internet supermarket. The Parkinson
brothers personally delivered that order, Thomas (who acts as executive vice
president and chief technology officer) sporting a suit, and Andrew (the
company's president and CEO) all in green as — you guessed it — a peapod. The
millionth customer received free groceries for a year, which she donated to a
local charity.
Aside from overcoming
consumer fears of online grocery shopping, the brothers Parkinson also faced
the challenge of convincing potential investors of the viability of the
service. Says Furton, “[We needed] to prove that people would shop this way,
and to prove that people would shop this way more than once.”
It was especially difficult
for Peapod to convince prospective customers to trust that the fresh fruits and
vegetables they ordered would be properly selected. In response to consumer
doubt, Peapod specially trained employees who had been with the company for a
while as “produce specialists.” Produce specialists were special shoppers who
selected all of the produce — and only the produce — for Peapod’s customers.
Implementing a program to
train produce specialists had two major benefits, according to Furton. The
first benefit, which had been intended, was that Peapod “increased produce
sales to the point where we now sell more produce as a percentage of total sales
than [Peapod’s suppliers] sell.” Because Peapod picks “the very best produce
that our retail partner has to offer,” explains Furton, customers end up with a
better result than if they selected the fruits and vegetables themselves.
The unexpected advantage
that came out of this training was a dramatic increase in productivity, because
the produce specialists became very adept at picking good produce quickly.
Although customer support
was the top priority at the time, Andrew Parkinson concedes that one of the
biggest challenges in those early days was not pleasing customers, but just
making payroll. "Many times,” says Parkinson, “we had to fund it out of
our own pockets or credit cards. A couple of times my family had to step in,
but we got through that. Now we feel pretty good about the fact that we were
way ahead of the curve in imagining that people would shop over their
computers, when most people used to think it was a stupid idea.”
While doing their best to
prove that Peapod was a viable and useful service, the founders began to raise
funds on a yearly basis, using their own salaries to finance the first 3 1/2
years of Peapod’s existence. “We raised funds every year from family, friends
and wealthy individuals,” says Parkinson. Later, the company attracted some
corporate investors and held a large private offering before going public.
"This time and funding
went to proving our ability to make money on each order and to manage multiple
sites in one city as well as in multiple cities,” says Parkinson. With each
milestone Peapod reached, they were able to raise funds at a higher valuation.
Peapod's goals have changed
as the company has grown. “A few years ago,” says Parkinson, “our goal was
proving that people would actually shop for groceries over the computer. Then,
after that, our goal was to make money on each order: to pick, pack and deliver
groceries profitably. The next step will be making Peapod profitable as we grow
the revenue line.”
In 1997, Peapod had its
initial public offering. The IPO, according to Furton, was good for the company
and did not damage its close-knit, small-company culture. “If anything,” Furton
says, “it sort of solidified in everyone's mind how viable this business really
is. It energized everybody into really believing in this … superior way to sell
groceries, and our dream, which is to fundamentally improve people's lives. I
think the IPO helped to verify that this really was a business, that we really
were a company. It helped to make people pretty serious about the task at
hand.”
Not only did the IPO validate
the feelings of Peapod’s employees, it has helped the company to implement some
more long-range plans. Says Furton, “it's given us more of a runway to work
with initiatives that have more than a 6-month life span.”
Although Peapod is making
great strides in the field of online grocery fulfillment and delivery, there is
still a long way to go. Parkinson’s goal is to build Peapod into a national
company; its services are currently offered in only 5 percent of the United
States.
As for competition, Peapod
has plenty, but, contends Furton, “[the competitors] have a different approach.
A lot of them have focused very hard on building a logistics-friendly operating
model, and because of that they're all struggling for customers. Peapod offers
a lot more flexibility to the consumer. Our other advantage is that we've
always partnered with the top grocery providers in the markets,” which means
that consumers don’t have to survive with only the small list of products that
are available at, say, a competitor’s local fulfillment center.
Andrew Parkinson would be
the first to tell you that it takes a lot to hold together a company like
Peapod — a company that integrates customer service with old-fashioned
knowledge and high technology. Because of this need, Parkinson placed corporate
culture high on his list of priorities in developing the business.
Peapod’s culture is built
partially on the premise of ensuring customer satisfaction. In fact, all of
their 1,300 employees (200 of which are full-time) are expected to adhere to
the customer-service philosophy: "to amaze and delight each customer."
According to Parkinson, a good staff is the way to successfully uphold this
type of culture. Says Parkinson, “In terms of culture, we have a pretty
specific mission. I like to hire smart and friendly people, and if we hire
smart and friendly people now, while we’re smaller, they’ll hire smart and
friendly people as we grow … The drivers and phone people have to be really
smart and friendly because they deal with customers.”
The biggest challenge of
growth, according to Furton, has been maintaining Peapod’s open, small-company
culture across many different locations. Therefore, to hold the culture
together across locations, Peapod’s management has implemented special programs
for employees, including Peapod University and The Perfect Dozen Program.
At Peapod University,
employees go through a standardized training program that teaches them what the
company is all about: “Dream, mission, and passion, the three key tenets in
Peapod’s strategy," says Furton. "Peapod University teaches employees
not only how to do their jobs, but how their jobs fit into total picture.”
The Perfect Dozen program is
a bonus program for all employees from the part-time service level to the field
district-management level. Each of these employees is able to take part in this
vesting program, by working off a scorecard while fulfilling orders. When an
employee processes 12 orders in a row without errors, he or she gets a bonus.
These bonuses can amount to up to 10 percent of an employee’s yearly pay. The
bonus comes with each paycheck, and there is an opportunity to complete any
number of “Perfect Dozens” within a pay period.
As Peapod grows, the
Parkinson brothers also work diligently at maintaining current customers while
growing only at a pace that allows them to maintain the integrity of the
services they provide.
Peapod has already
implemented an offshoot of its grocery-delivery service, in the form of market
research services for manufacturers, in which they sell demographic information
about customer-buying habits. Furton explains that “customers' identities are
not revealed, just aggregated across different characteristics.”
Manufacturers use this
service to research the purchasing effects caused by particular coupons. For
example, a company might ask Peapod to test a $.50 coupon for its product
against a $.75 coupon, before the company goes national with a national
magazine campaign. “We run these tests and target households that receive
coupons based on where they live and how they shop,” says Furton. “We can help
manufacturers determine whether a $.50 coupon is enough, or whether they need
to go the full $.75.” Customers very rarely object to the anonymous revelation
of this information, Furton says.
So what else is in Peapod’s
near future? A new Web site design, as well as a new type of warehouse-based
fulfillment. In planning for the next generation of Peapod delivery services,
the company has entered into a strategic alliance with Exel Logistics, who will
design and operate customized warehousing and transportation solutions for the
company.
Peapod also
announced a national service that was rolled out with its new warehouse format during the fourth quarter of 1998. Called Peapod Packages,
it allows customers in any area to send packages of pre-selected dry
grocery goods, such as care packages or get-well baskets, to someone in another
part of the country.
Additionally, Peapod is
expanding into new American cities and will begin an international expansion
effort with a deal with Australian retailer Coles Myer. During 1998,
Coles Myer began to use Peapod’s online grocery shopping systems in order
to deliver Internet shopping services to its customers. Parkinson is confident that Peapod's name recognition will speed
Peapod’s expansion in both domestic and foreign markets.
And if all doesn't go as
planned? Andrew Parkinson seems up for the risk. Parkinson believes that if
entrepreneurs have the proper opportunities, risks are imperative to success.
“The thing I’ve noticed,” says Parkinson, “is that the people who persist get
through the cycles. There are always up-cycles and down-cycles [in a business],
and if you don’t persist you won’t make it through.”
Copyright © 2000 by Virtual
Advisor,
Inc. All rights reserved.