Peapod hopes experience, service, customer loyalty can fend off competition in grocery delivery
On a Wednesday morning in late May, 10 Peapod delivery trucks left the Camp Hill Giant supermarket to deliver dozens of grocery orders to homes and small businesses across Central Pennsylvania.
Ten additional trucks stocked with weekly staples, including produce, meat and dairy items, would repeat the journey in the afternoon and deliver into the evening.
But the 16-foot green trucks are not just carrying heads of lettuce, family-size packs of chicken breast and bags of charcoal for summer barbecues. They are carrying Giant into a changing — and challenging — online retail environment.
Traditional grocers face mounting competition from larger companies such as Amazon and Walmart, which have been casting a wider net into the food business. Grocery store pickup and delivery services have become the next battleground for retailers.
Officials for Illinois-based Peapod believe nearly 30 years of experience in the business sets up the company to grab a big piece of the growing online shopping pie. The company’s optimism also stems from confidence that seasoned delivery drivers such as David Yegyan are providing good door-to-door service to customers.
Yegyan, a Philadelphia native who ran a dry-cleaning business before joining Peapod three years ago, is more than happy to talk with customers about their day as he carries bags of groceries into their homes.
He enjoys that personal interaction and making the customers laugh and smile, which he does on nearly every stop.
“Every stop is different,” said Yegyan, who, at times, feels like a bartender. “People tell you their problems.”
Growing delivery routes
The stops are adding up for Giant, which added the home delivery option on top of its pickup services at the Camp Hill store in early 2015. Peapod is a sister company of Giant and a subsidiary of global grocery giant Ahold Delhaize.
A Peapod driver like Yegyan might make 12 to 20 stops per day within a 60-mile radius of the Cumberland County store. On busier days, some drivers might have 25 deliveries to make, including some to small businesses such as daycares.
“It’s pretty constant,” Yegyan said.
When Giant added the home-delivery option, the Peapod service was available in more than 60 zip codes in Central Pennsylvania. Three years later, the Camp Hill store, which is one of four Giant stores in Pennsylvania attached to a Peapod fulfillment center, reaches customers in more than 120 zip codes, including in Cumberland, Dauphin, Adams, Lancaster, Lebanon and York counties.
Peapod expects shoppers will continue shifting to online orders, which could lead to more communities in its service area and potentially more stores with delivery drivers.
But the company also is looking over its shoulder at a growing list of online competitors in a grocery business known for razor-thin profit margins. The door-to-door convenience of delivery, which comes at a cost to shoppers, is just as tight for companies because of staff and truck fleet expenses. However, it has to be part of the overall sales strategy for retailers.
“We are in a business where only the paranoid survive,” said Carrie Bienkowski, Peapod’s chief marketing officer. “You are constantly looking over your shoulder. At the same time, you can’t get distracted by it.”
Amazon and Walmart are among the biggest threats in the online grocery market, along with Target. Walmart owns e-commerce platform Jet.com, while Target recently acquired grocery startup Shipt as a way to compete with Amazon, which has Amazon Fresh and now owns Whole Foods.
With online grocery sales projected by some industry studies to grab as much as 20 percent of the market by 2025 — up from about 2 percent or 3 percent currently — retailers are spending aggressively to make grocery shopping more convenient.
Many companies are renovating stores and adding pickup areas to make it easier for customers who order online, and speeding up in-store service by expanding mobile scanning and payment options. Delivery is the next big step.
How does Peapod, which serves 24 U.S. markets in 12 states and Washington, D.C., compete with the growing wave of competitors?
Bienkowski said part of it is recognizing that customers don’t all want the same service each time and that shoppers will use different sales channels to buy the products they need. Giant customers may start with Peapod pickup orders, try delivery and still go to the physical store for some of their weekly shopping.
And that choice may vary by shopper or include a combination each week.
Retailers win not by choosing one channel over another, she said. “It’s recognizing they all have a role.”
In fact, Peapod has found its services complement physical stores in Central Pennsylvania, which is one of Peapod’s fastest-growing markets, Bienkowski said, citing double-digit annual growth. Ahold does not break out Peapod’s sales in its reporting.
Peapod hopes that brand loyalty to Giant or other Ahold subsidiaries will encourage more customers to try pickup and delivery as part of their weekly shopping routine.
To claim a bigger piece of the delivery pie, the company also should highlight its longevity in the grocery business, said Phil Lempert, a grocery analyst who runs website Supermarket Guru. Peapod has a good reputation for training people to pick fresh grocery items, he said, especially produce. One of the reasons people are hesitant to try a pickup and delivery service is because they believe they might get bad produce or fruit.
“I don’t think it’s about scale,” he said of Peapod competing with Walmart and Amazon. “I think they need to focus on assortment and quality and push that. They have to play up the fact that their employees are experienced and trained.”
Of course, price is also a factor. In April, Peapod reduced prices on thousands of individual grocery items available online to boost its appeal.
The company also expanded its promotion and subscription offerings to keep shoppers from leaving for other online grocery services.
Peapod charges a delivery fee based on the size of the order, with prices ranging from $6.95 to $9.95 per order. The company also offers discounts based on delivery times and other promotions.
Peapod customer Jenn Brosky, who was on Yegyan’s delivery route in the Mechanicsburg area, said price plays a big part in her decision. She normally uses the Peapod pickup service in Camp Hill because the store is along her daily commute. But she opted for delivery that day because of a $5 off special.
Brosky said she has considered Instacart, which has comparable per-delivery fees along with monthly and annual membership rates, but sees Peapod as a more cost-effective option for her family because of the pickup convenience.
Plus, she has been using Peapod for about two years and likes the service, so there is some reluctance to switch.
Convenience and being able to stick to a budget, she said, are the biggest reasons she shops online.
Part of Peapod’s pricing included introducing product bundles to make it easier for customers to order staple ingredients like meat, cheese and lettuce for popular meal nights such as taco Tuesday.
Bienkowski said shoppers are responding to the more flexible mix-and-match bundles. It’s also much easier for retailers to bundle online versus in the store, where store employees have to build special displays for related products. There are no space limitations online.
“To create that in-store experience is expensive and painful,” she said. “You can create a virtual bundle with a couple of clicks.”
Peapod also rolled out bulk-buying discounts and PodPass Midweek, a subscription service that costs $55 — half of the price of its regular PodPass subscription. PodPass, like an Amazon Prime account, allows Peapod users to pay an annual fee to get unlimited deliveries.
The midweek option also is available in three-month and six-month subscriptions for $25 and $35.
Bienkowski said PodPass is part of the reason for the increased sales across Peapod’s territory. The subscription model has led to more frequent and often bigger orders, she said.
“When you remove the barrier of a delivery fee, it frees them up to order a lot more often,” she said.
She said the average order across Peapod totals about $150 to $160, depending on the market. In the Giant/Martin’s footprint, she said it’s about $155 per order.
Bienkowski declined to share profit margins, but said it’s not measured on a per-route or per-truck basis. Rather, Peapod looks at margins on a blended basis, or the average across trucks on any given day. Some trucks have a few large orders that fill up the truck and may not travel as far or take as long to deliver, while others may have a lot of smaller orders that are spread out.
“The challenge of this business is that we’re not drop shipping items,” she said. “We’re committing to meeting a certain delivery time (for the customer).”
It’s also a business that doesn’t just cater to urban dwellers and millennials. Peapod drivers like Yegyan might go from a neighborhood in Mechanicsburg to a suburban townhouse development and then a rural stop on the same route.
And everyone with a mobile device or the internet can and does order from Peapod.
“It gives people that are disabled the freedom to have a life,” Yegyan said.
Some customers don’t like to shop for themselves or prefer not to take their kids when they shop for groceries.
The personal interaction and good customer service by the drivers can make the difference in keeping people using these delivery services, Lempert said. In fact, other services are trying to match customers with the same staff to help establish brand loyalty, he said.
Lempert said his biggest concerns for Peapod are trying to compete on prices for individual products with competitors like Walmart and Amazon, which sell a lot more than grocery products.
The projected growth of delivery services, he said, also will depend on the evolution of smart appliances like refrigerators and other devices that can help with automatic reordering of weekly staples like milk or eggs, which can drive online delivery growth.
Online growth also may force retailers to rethink the size and look of their physical stores, Lempert said, citing the possibility of smaller grocery stores and grouping more items in stores by specific meals.
Ahold reported online sales of about $3.4 billion last year out of total sales of $73.1 billion. The company has a goal of about $5.8 billion online by 2020.
It could get there if Peapod can continue tapping into the parent company’s network of more than 6,500 stores worldwide.
Earlier this year, Peapod added a fourth Pennsylvania fulfillment center at a Giant store outside Philadelphia.
“We are constantly looking at zip codes in all markets,” Bienkowski said. “It’s a never-ending process.”