Peapod’s more conservative investment approach and the acquisition by Royal Ahold paid off.
The company is one of many early e-grocery companies to survive for a longer period. Webvan
fell short of customer demand. There are obvious differences between the two companies.
Peapod did not stray from its core infrastructure while Webvan expanded too quickly into
unproven and unfamiliar areas where they leveraged their business too liberally. Webvan
invested in technology and an infrastructure that was too expensive for low margin products.
Webvan’s founder, Louis Borders, had experience with larger margin products, where profits are
not solely dependent on volume. Webvan expected a high adoption rate to their e-grocer
business; however, people were skeptical about the lack of control over the quality of the
product. Thus, the lack of volume in grocery sales was the prime contributor to the lack of debt
repayment. With regard to technology, Webvan did not rely on the experience of others. Neither
did they have any experience in the grocery market. Peapod took advantage of external alliances
to host their distribution systems, thus they were able to focus on customer relation management.
Relying on the development of their own systems, forced Webvan to incur higher costs and
resulted in lack of customer focus. Peapod implemented technology gradually based on the
growing needs of their customer base, while Webvan initially implemented technology that was
out of scale with their product offerings. Webvan had a fully automated route planning system,
but the lack of customer concentration led to delivery inefficiencies. Peapod achieved delivery
efficiency by forming concentrated markets. Neighborhoods with existing customers were
targeted by marketing campaigns to achieve delivery density. Incentives were offered to
customers choosing delivery in strategically time slots. Webvan re-branded two years into its
existence, making previous marketing efforts wasteful. Re-branding was done in an effort to
change their image from a grocery service to a general delivery service competing with
companies such as FedEx and UPS. Another reason for Webvan losing customers was
deterioration in the product quality in an effort to cut costs. Reducing quality was a cost cutting
measure, but they failed to understand their consumers’ demographics, i.e., primarily dual
income women, who could afford to shop but did not want to bear the utility cost of going to the
supermarket. If the quality of product received at their door was at least equal to what they could
get at the corner market, they would willingly pay a bit more for the convenience of not having
to go to the market. However, if the quality was inferior, there is no reason for them to use the
service. To be competitive in the low margin grocery business it is very important to maintain
the human touch. Webvan failed in this respect. Webvan could have been successful if they had
not stretched their resources across such a large geographic and financial expanse. Louis Borders
gravitated toward the idea of a large scale delivery service on the budget and revenues of a
grocery store chain. If he would have focused on this vision in the beginning instead of making
an attempt to revolutionize the e-grocery business, his capital expenditures may have been
recognized as a product that could have been resold to one of the delivery giants or perhaps he
could have filled a niche delivery market. From the beginning, Peapod’s focus was on groceries.
This is where Peapod earned its experience. With Royal Ahold’s help, Peapod developed a more
profitable model and gained a solid hold on the e-grocery business. By focusing on markets
where the parent company had a strong presence, economies of scale and expense side 63
efficiencies were turned into real profit. Webvan’s leadership was unable to develop and
maintain a focus; this failure makes the firm’s history an interesting topic for this type of study,
and that history can provide a thoughtful manager with many insights into how not to succeed in
a particular e-commerce venture.
Peapod’s more conservative investment approach and the acquisition by Royal Ahold paid off.
The company is one of many early e-grocery companies to survive for a longer period. Webvan
fell short of customer demand. There are obvious differences between the two companies.
Peapod did not stray from its core infrastructure while Webvan expanded too quickly into
unproven and unfamiliar areas where they leveraged their business too liberally. Webvan
invested in technology and an infrastructure that was too expensive for low margin products.
Webvan’s founder, Louis Borders, had experience with larger margin products, where profits are
not solely dependent on volume. Webvan expected a high adoption rate to their e-grocer
business; however, people were skeptical about the lack of control over the quality of the
product. Thus, the lack of volume in grocery sales was the prime contributor to the lack of debt
repayment. With regard to technology, Webvan did not rely on the experience of others. Neither
did they have any experience in the grocery market. Peapod took advantage of external alliances
to host their distribution systems, thus they were able to focus on customer relation management.
Relying on the development of their own systems, forced Webvan to incur higher costs and
resulted in lack of customer focus. Peapod implemented technology gradually based on the
growing needs of their customer base, while Webvan initially implemented technology that was
out of scale with their product offerings. Webvan had a fully automated route planning system,
but the lack of customer concentration led to delivery inefficiencies. Peapod achieved delivery
efficiency by forming concentrated markets. Neighborhoods with existing customers were
targeted by marketing campaigns to achieve delivery density. Incentives were offered to
customers choosing delivery in strategically time slots. Webvan re-branded two years into its
existence, making previous marketing efforts wasteful. Re-branding was done in an effort to
change their image from a grocery service to a general delivery service competing with
companies such as FedEx and UPS. Another reason for Webvan losing customers was
deterioration in the product quality in an effort to cut costs. Reducing quality was a cost cutting
measure, but they failed to understand their consumers’ demographics, i.e., primarily dual
income women, who could afford to shop but did not want to bear the utility cost of going to the
supermarket. If the quality of product received at their door was at least equal to what they could
get at the corner market, they would willingly pay a bit more for the convenience of not having
to go to the market. However, if the quality was inferior, there is no reason for them to use the
service. To be competitive in the low margin grocery business it is very important to maintain
the human touch. Webvan failed in this respect. Webvan could have been successful if they had
not stretched their resources across such a large geographic and financial expanse. Louis Borders
gravitated toward the idea of a large scale delivery service on the budget and revenues of a
grocery store chain. If he would have focused on this vision in the beginning instead of making
an attempt to revolutionize the e-grocery business, his capital expenditures may have been
recognized as a product that could have been resold to one of the delivery giants or perhaps he
could have filled a niche delivery market. From the beginning, Peapod’s focus was on groceries.
This is where Peapod earned its experience. With Royal Ahold’s help, Peapod developed a more
profitable model and gained a solid hold on the e-grocery business. By focusing on markets
where the parent company had a strong presence, economies of scale and expense side 63
efficiencies were turned into real profit. Webvan’s leadership was unable to develop and
maintain a focus; this failure makes the firm’s history an interesting topic for this type of study,
and that history can provide a thoughtful manager with many insights into how not to succeed in
a particular e-commerce venture.
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