I’ve used this analogy before for last-mile delivery, but it’s appropriate to repeat for this question. Many of us born in the ’60s or before remember getting milk delivered to our homes once or twice a week. Even my family, owners of a small group of supermarkets, used this service. Gradually, however, shoppers began buying their milk and other dairy products from supermarkets and convenience stores and the milkman was delivering to fewer and fewer homes. At some point, perhaps when only 40 percent of a neighborhood was buying from the milkman, it was no longer economically feasible for the dairy to continue the service.

Now think of this analogy in reverse. As more and more people in neighborhoods start routinely buying from a home delivery service, the economics of the model start to become feasible. This is especially true in urban and suburban areas. All of this is a long way to suggest that these delivery services may now be more than just a solution looking for a problem.

It’s going to be an exciting and disruptive three-to-five years ahead. There’s no question that the rapid expansion of online grocery options will grow the online grocery shopper base and the overall market. The challenge is that players that rely on centralized distribution centers (like Peapod in most markets, and AmazonFresh and FreshDirect) are inherently about throughput and capacity utilization. To break even or make money, order and route density have to be optimized, which takes years and market-by-market discipline. It also requires relatively capital-intensive, long-term bets. You build distribution capacity not for today’s demand but for the next 10 years’ POTENTIAL demand. I’ve looked carefully at the addressable market in around 40 key U.S. metros, and online grocery has a bright future. But I’m not certain metros like, say, NYC can support three centrally-distributed online grocers. Perhaps not even two. And the rapid proliferation of alternative store-picked models (which have their own challenging economics) will likely fragment demand across a growing number of players. Peapod is a formidable competitor, and its relationships with suppliers… Read more »

First, full disclosure. I have known and admired Andrew Parkinson almost since Peapod’s modest beginnings and I remain a fan of both his and his remarkably resilient company. I guess, to paraphrase a once popular political phrase, it all depends on what you mean by “multiple.” If multiple is two or three main competitors and a handful of scattered local players the answer is clearly “Yes.” If, on the other hand, multiple implies a half dozen mega-distributors, the answer is “No.” The whole question hinges on the apparent inability of so many online competitors to correctly define the problem. This isn’t an exercise in digital logistics, rather it’s an example of how the convergence of social realities (high disposable incomes, two income households who never taught their children how to shop—especially for things like produce—and may not have know themselves, etc.), technological evolution and customer lifestyle makes markets. Since so many have been tempted to define—and therefore “solve”—the logistics part of the equation the field has remained open to companies like Peapod who understand people… Read more »

Strictly from a layman’s perspective, it seems that Peapod’s challenge may be that it is the most expensive viable model out there. The greatest expense in home delivery is owning the capital (rolling stock, systems) and labor. Peapod did a better job that Webvan, etc., with that, which is why they’re still in business.

But I’m not sure how they will hold up versus new competitors who are choosing to “buy” versus “make.” Amazon rents delivery from the USPS and others. That, coupled with leveraging existing systems and customer base, should give Amazon a huge cost advantage right out of the gate. Add on Bezos’ propensity to operate at breakeven or below and there would seem to be little margin left for Peapod to cover its fixed costs.

Absolutely. One only needs to look across the Atlantic and see the meteoric growth in online shopping. The number of Europeans ordering groceries online has grown 60 percent in the past five years. Britain leads the way with 22 percent of its population ordering groceries online. The biggest opportunity continues to be in online shopping combined with store pickup. Research indicates that online grocery shoppers spend more in total with this method than pure online or pure in-store shopping. This will provide some positive points of differentiation relative to Amazon. However, challenges will continue from the noted clicks-and-bricks retailers. Peapod, with its multiple store banner, Kroger, Wakefern, Walmart and others have the physical store presences currently lacking by Amazon and continue to test new delivery options. The latest of which is Walmart’s Pickup Grocery service for registered customers in Northwest Arkansas. “Registered shoppers can order from the online site which contains roughly 10,000 grocery and consumable items including fresh meat, dairy, produce and common household products. The consumer then schedules a pickup time ranging from… Read more »

The online grocery business for dry goods will definitely increase, as consumers want the convenience and stores improve tracking so consumers have a good idea of when goods will arrive and do not have to leave them outside for a long time. Online shopping and delivery of produce, meat and refrigerated or frozen products is more of a challenge both from what consumers want and the delivery process. The quality of items delivered and the issues of spoilage are high hurdles to overcome but critical issues for consumers. Amazon is a strong competitor for the dry goods online sales, but Peapod is figuring out the more difficult challenges. Peapod needs to focus on those issues as areas of excellence and expand as is reasonable for them.

Amazon is obviously a threat, but what about the pickup and delivery businesses? There are hundreds of companies that have been moving things for many years that can get into this business with a little bit of change to their work flow.

Agree with Keith that Peapod does have a bright future assuming they “color inside the lines.”

To me the most interesting aspect of what’s happening with online grocery shopping is how it’s accelerating the fragmentation of the market. We’re seeing lots of specialized innovative startups serving distinct market segments, e.g. Front Door Farms. We’re expecting that even in the near term there can easily be 8 to 12 successful online grocery shopping operations serving large markets. To see our latest forecasts for online grocery shopping, you can attend the free of charge Food Institute webinar.

First, a big congratulations on the milestone! Twenty-five years … a full quarter-century. (That’s like 6 billion years in Internet time.)

Anyway, I think PP’s biggest challenge — other than Amazon’s usual disruption of a parallel universe unconcerned with profitability — will be making this more than a niche business. It’s only a small exaggeration to say the whole movement in food retailing over the past century has been reducing prices through reducing costs; fewer but bigger stores and fewer employees through self-service. This seems like a giant step backward in that respect, and while I’m sure there are many people who are happy to take it, I don’t think it will ever be that many so as to be more than a fraction — say a fifth — of the market. I’ll be happy for them if they prove me wrong.

Online grocery with delivery to home will continue to be a niche reserved for a small segment of the population that can pay for the added convenience of home delivery. Low margins, complex logistics, fuel cost variability, vehicle expenses and wages make this a difficult segment in which to make a profit.

I have changed my outlook a little over the past 5 years in that I think there is a possibility that a highly efficient grocery hybrid model offering pre-order pickup, limited delivery and physical stores might be able to crack the code and squeak out a profit. However, the comments of Mr. Parkinson are spot on as Amazon could ruin prospects of success in even a grocery hybrid model in the short- to mid-term market by running at a negative profitability rate.

I don’t think there is enough to support the existing players. Tonight I look outside my window. It’s 10pm and there is a Peapod truck double parked with its flashers on. Something just seems weird. Either they are way behind or someone wants groceries at 10 pm. The greatest challenge for online shoppers are all the good retailers that make grocery shopping fun.

Online grocery retailing is an “iffy” success story. The grocery channel depends so much on subjective sensory purchasing behavior that pushing all of this into an online effort is difficult for many products (especially fresh fruits, vegetables, bakery, dairy, etc.). However, most packaged goods offer the opportunity to support an online presence if done correctly. Perhaps the real issue is if a service can survive on the slim margins that the grocery retailer supports in today’s environment. We just have to wait and see.