Table of Contents Understanding the Environment Case Synopsis 3 Industry Ring Analysis 5 SWOT Summary 7 Controllable and Uncontrollable issues 11 Appraising the Environment Existing Mission 12 Existing Objectives 13 Existing Strategies 14 Alternative Solutions 19 Evaluation and Justification of Recommendations Recommended strategy 21 Implementation and Plan of Action 25 Evaluation and Control 26 Justification 28 Conclusion 29 Appendices 29 References 40 Understanding the Environment Synopsis When The Peapod case took place during the late e 90 s and in early 2000 when Peapod and other online grocers began to enter their market. Peapod was the pioneer of the online grocery business. In 1989, Andrew B. Parkinson and Thomas L. Parkinson created Peapod before commercial use of the Internet was even popular. Due to their first mover advantage, Peapod developed a strong customer base of around 90, 000 spread over 8 markets including: Chicago, Illinois; Columbus, Ohio; Houston, Texas; Boston, Massachusetts; San Francisco/San Jose, California; Dallas, Texas; Austin, Texas; and Long Island, New York.
At first, Peapod filled orders by establishing alliances with grocery chains. Peapod employees shopped for the groceries and then delivered them to customersf homes in Peapodfs vans. Later, Peapod opened centralized distribution warehouses which stored the items used to fill customer orders. In 1999, three distribution centers were opened up in Chicago, Long Island, and Boston, and a fourth warehouse was under construction in San Francisco.
Decision Point Despite growing revenues, Peapod continued to lose money in several of its markets, and needed help to resolve several issues: • Alliances with grocery chains entailed too high supply costs • Due to losses, financial reserves were becoming depleted • Intensity of rivalry from new entrants to online grocery business increasing • Delivery charges discouraged customers from shopping online • Product lines only returned small profits • Poor management structure in place Why does Peapod need us? Due to Peapodfs situation had gotten bad and management seemed to not have an effective strategy to turn the situation around. The CiscoKids are in a unique position to help Peapod in the following ways. • Peapod management is struggling to deal with day to day operations of the business since they failed to set into place long term planning at their start. Because they are bogged down with operations, senior executives dont have time to fully assess their situation. • The CiscoKids are experienced in performing the necessary analysis of the industry to thoroughly evaluate the competition in an unbiased way. • We can provide a fresh view to the problem and offer possible alternative solutions which Peapod has not thought of.
• The CiscoKids have the necessary skills to perform a thorough SWOT analysis to uncover weaknesses and strengths within the company. We can train Peapod management to scan their environmentally to look for opportunities to include in long term planning. • We can also be useful in teaching Peapod management to put strategic planning in writing with clear objectives with measurable results which can be completed within realistic time frames. We can teach managers to constantly update plans and to implement controls to constantly monitor progress. Industry Ring Analysis Figure 1. Industry Ring Analysis The industry ring analysis above represents the industry environment Peapod Inc.
falls within, and the surrounding industries and economic changes for the year 2000 which play a part in the overall competitive environment surrounding the company. Peapod Inc. is an online grocer specializing in grocery sales over the Internet. Once food products are ordered, Peapod fills the orders via shoppers at local grocery stores or through Peapod owned distribution warehouses, centrally located in select areas. Once orders are filled they are delivered directly to the customersf homes. Peapod competes directly with other online grocers such as Webvan Group, Inc.
, HomeGrocer. com, and NetGrocer. com. The retail grocers industry includes all grocery chains, small grocers, and specialty grocers, and includes names like K rogers, Safeway, and Albertsons. The retail food sales industry consists of all the previously mentioned food suppliers, but also includes businesses which sell prepared food products. McDonalds, Kentucky Fried Chicken, Pizza Hut, and Chilis can be included in this category.
This category consists of all restaurants including fast food as well as high end restaurants and both delivery and sit-down types of establishments. Catering businesses would also be considered food retailers. The next ring is the general category of food sales, and it includes farmers, butchers, and food manufacturers who supply the food on a wholesale scale for retailers. The final ring consists of all other economic changes in the environment during 1999 and early 2000 which played an important role in Peapodfs competitive environment.
Webvan Group, Inc. Webvan another online grocery and drugstore business, opened for business June 1999 in Foster City, California. Their strategic goal was to be gthe market leader in the full service online grocery and drugstore business. h Webvan had the benefit of seeing how Peapod did things before opening. They hired many professional to build their site and modeled themselves after already successful firms relating to different aspects of the business. In addition, Webvan opened up a centrally located 330, 000 square foot distribution warehouse.
They also formed strategic alliances with local vendors to supply customers with high quality fresh products. Customer response was overwhelmingly positive attracting around 10, 000 in the first 6 weeks. Investor responses paralleled customersf; opening stock prices reached $34 dollars per share. Unlike Peapod, Webvan kept customers happy by not charging a delivery charge for orders over $50 dollars and did not charge an annual fee as well. HomeGrocer.
com HomeGrocer. com was founded in 1997. They were another online grocer like Peapod. They also followed the model of Peapod creating centralized distribution centers and forming alliances with vendors for diversification and quality. They opened in Seattle, Washington; Portland, Oregon; Orange County, California; and parts Los Angeles and San Bernardino County in California. HomeGrocer offered free deliveries on the first order and free deliveries for orders over $75 dollars.
HomeGrocer also focused on satisfying customers by specializing on delivery logistics like scheduling to meet customer needs and separating hot and cold items in special compartments to ensure quality. In fact, their commitment to customer satisfaction was the center of their business strategy offering a 100% satisfaction guarantee and providing a 24 hour toll free customer support line. The companyfs success was such that it attracted investment from Amazon. com and Barksdale Group an investment firm, and they had plans to go public in 2000. NetGrocer. com NetGrocer opened in 1995 with a less diversified line of products.
They were not as successful as other online companies, and had to remove their CEO and 80% of their staff. In 1999, they re-launched their site with greater success. Their average order size increased by 40%. For delivery logistics, NetGrocer uses FedEx fs third business day service and charges for delivery on orders less than $75 dollars. SWOT Summary Intensity of rivalry. The intensity of rivalry for the online grocery industry is high.
Due to the cost structure of groceries, profit margin is low; therefore, online grocers must be low cost leaders to remain competitive. Additionally, there are many new entrants to the industry competing for the same customers. Barriers to entry. There are few barriers to entry to the online grocery business.
Initially a person would need some computers and vehicles for delivery, but those items could be rented. This makes it possible to start an online grocer site with very little capital investment which makes it easy to start this type of business. Barriers to exit. Due to the small capital investment necessary to enter this line of business, leaving the industry is as easy if not easier than entering. However, a company which has established itself with distribution centers and a significant investment in e-commerce solutions packages the barriers to exit can be considerably higher. Competitive power of substitutes.
The competitive power of substitutes is high. There is virtually unlimited quantities of brick and mortar stores shoppers can go to instead of shopping online. These stores often provide tangible benefits to customers, which can give them an advantage over the online grocers. For instance, you can touch or feel the products in physical stores allowing customers to judge quality which is hard to do online. Supplier power.
Supplier can go either way. If an online grocer builds its web site with proprietary software from a single vendor, they may be giving the software a lot of bargaining power. The opposite is true for groceries. Grocery suppliers are in abundant supply limiting their influence over online grocers. Customer power. Since groceries are essentially the same, there is little cost and loss for customers to switch to a different grocer, so they can have great bargaining power.
There is also a large number of close substitutes for most groceries which also contributes to the buyers power to switch vendors. Political-legal Changes ? The Social Security Administration (SSA) supports expand electronic service delivery (ESD), such as to implement new internet transactions, to change employees wage report electronically, to verify social security numbers, and to pilot internet capacity. ? New internet regulation have been adopted. ? Government established new standard for selling organic products.
Economic Changes ? The internet has accelerated economic growth in the U. S. ? Vulnerable industries such as computer industries are likely to be hurt by the next recession. ? Living and working spaces are in demand for people in the dot. com business.
? NASDAQ started to drop in March 2000. Technological Changes ? Y 2 K program couldnft help to prevent data entry errors, but Y 2 KFOX could help to prevent these errors. ? Better security features for internet users. ? Computers and internet access are more available to more people in more countries.
? Wireless connection makes internet connection more convenient. Social-cultural Changes ? Web site companies, such as Yahoo! , e-Bay, and E-Trade Group Inc were sabotaged by a denial-of-service attack by hackers. ? A lot of internet users were uncomfortable and feel unsafe to use e-mail or to buy online products. ? More people are using the internet all over the world. ? Online shopping grows in popularity. ? People are more concerned about their health and the type of food they consume.
Opportunities • Alliances with grocers who want to go online • Sale of a more diversified product line • Partnerships with other businesses to sell their products online • A lot of room for expansion • Penetration into foreign markets • Growth of computer knowledge Threats • Conventional grocers beginning to do online sales • Competition from other online grocers • Hackers • Bad economy • Government regulation of e-commerce • Taxes for online sales • Y 2 k bug Key Success Factors Through our research we have found several factors common with all successful companies in this industry. The following list summarizes our findings • Companies must constantly strive to lower cost of products being sold • The web site must be easy to use. It must be intuitive to customers and it must be pleasant to look at. • Online sales must be 100% secure to maintain customer loyalty • Companies in this industry must achieve name recognition to have faith in online products they canft touch • Product lines must be very diverse offering items with larger profit margins to offset low profit margin of perishables • Companies must be innovators constantly testing new products and marketing concepts • Companies must maximize use of web sites for customer satisfaction (online documentation of products, recipes, remember customer order) Strengths • Just-in-time inventory system • Strong customer base • First mover advantage • Diversified product line • Online tracking and customer information base • Top quality web site Weaknesses • Declining capital reserves • Declining stock prices • Over reliance on grocer alliances for products • Too widely situated; difficult to manage business • Delivery charge • Poor management Controllable and Uncontrollable Issues/Problems From our SWOT analysis of Peapod and the online grocer industry, we have uncovered many controllable and uncontrollable issues and problems which play a significant role in the success of any company in this industry.
Controllable. The following is a list of issues which we believe to be controllable by Peapod management • Delivery costs • Quality of service to customers • Quality of service to suppliers • Quality of products on site • Ease of use of web site to order products • Amount of losses from spoilage • Timeliness of delivery service • Amount and quality of marketing and advertising • Security relating to use of customer information and online ordering Uncontrollable. The following is a list of issues which we feel is out of the control of Peapod and therefore must be dealt with as they occur. • General state of the economy • Weather conditions in delivery areas • Taxes on products • Future governmental regulations of e-commerce • Consumer tastes and preferences • The level of computer expertise of customers Appraising the Environment Existing Mission Managementfs vision for the company was expressed in three statements: • Our Dream— To fundamentally improve peoplefs lives by bringing interactive shopping to a broad consumer market.
• Our Mission— To be the worldfs leading and preferred provider of interactive grocery shopping services. • Our Passion— To amaze and delight each one of our customers. (Belmont & Eisner, 2001) Pros The convenience of ordering groceries by computer is not new. As the industry pioneer, Peapod, Inc. has lived up to their mission on amazing their customers. They have been in business since 1989 which gives them the edge in skills and experience in the industry.
There are many ways they have delighted their 90, 000 to 100, 000 customers in the eight market areas. The convenience of accessing the on-line business 24 hours a day, seven days a week puts their customers at ease when shopping for groceries and other products. Peapod, Inc. fs wide variety of products offers customers a one-stop online shopping experience. Their delivery service and competitive prices are also a plus. Peapodfs dream that is mentioned in the case is gTo fundamentally improve peoplefs lives by bringing interactive shopping to a broad consumer market.
h This dream is very reasonable. The extensive features on the website has ranked the company #1 because of its easy to navigate. Some features like g Smart Cart, g Express Shop are designed for consumer convenience while shopping, whether it be for new or previous customers. The g Buddy E-Mail function gives the option of two email addresses that delivered confirmed order fulfillment. These attributes have made Peapod, Inc. fs dream come true.
Cons Peapod, Inc. fs mission statement is gTo be the worldfs leading and preferred provider of interactive grocery shopping services (Belmont & Eisner, 2001) h. Unfortunately, the company has not lived up to its mission. The companyfs online grocery shopping service is in a financial bind. Its recent income statements and balance sheets have clearly stated that it has not been ahead of the game. They are not the leading or preferred provider in the industry.
Perhaps Peapod, Inc. should alter its statement from being gthe worldfs leader ch to gAmericafs leading and preferred provider ofc services. h Many customers of Peapod, Inc. have enjoyed the convenience of its delivery service.
To be the leader in the industry, you must have the financial stability to operate this type of service. Unfortunately, its original, partner-based business model entailed too high a cost structure for the company to achieve profitable growth. Its structure to centralize its distribution methods in all eight markets was used to cut costs and improve delivery service. Although, the company was reportedly losing money in five of the markets it served in mid-1999 (Belmont & Eisner, 2001).
The grocery retailing industry is an enormous competitive market compared to the on-line grocery shopping industry. An on-line shopper may miss the aesthetics of the normal customer in the grocery retailing industry. A virtual store versus the atmosphere of a physical store may not satisfy the senses of any customer. It may be difficult to meet those needs over a computer screen. It is evident that Peapodfs mission seems to be drifting in another direction. Clearly, it is not the leader or preferred provider because the company only has eight domestic market areas and has been losing money for many years.
Managementfs vision needs to changed to ideas that can be reached. Existing Objectives Objectives • To attract more users. • To retain the business of current users. • To increase the frequency with which users placed orders. • To grow average order size. • To enhance awareness of the Peapod brand.
• To optimize order fulfillment practices. • To improve the accuracy of order picking at warehouses. • To reduce costs in fulfillment operations. Pros Peapod, Inc. is the pioneer of the on-line shopping industry. Because of its establishment in 1989, one of its positive advantages is its awareness.
The brand recognition and quality of products helps to gain more users and retain current customers. Customer reach and loyalty also plays an important role in this area. The company formed partnerships with traditional retailers in order to penetrate other markets. Cons The companyfs major downfall is in its objectives.
It fails to measure its success, quantifiably. The objectives mentioned in the case, gto increase the frequency with which users placed orders, h does not mention the percentage to be increased by. It also does not give a time frame when the increase should be achieved by. Perhaps this increase should be implemented and evaluated every quarter, semi-annually or annually. In addition, the internal objectives like gto improve the accuracy of order picking at warehouses and gto reduce costs in fulfillment operations should also use these criteria.
It should also add what location needs to improve these practices and by how much cost reduction the company wants to accomplish. Also, it may be possible to give a time frame on a purchase order with a specific amount of items. These factors should be taken into consideration in order to fulfill these objectives. Existing strategies Global-level strategies Global-level strategies simply do not apply in the case of Peapod, as it remains a purely domestic U. S company with only eight markets. Corporate-level strategies Peapod, Inc.
is the leading online grocery retailer, having captured approximately 30% share of the estimated $235 million market for full-service online grocery sales. In fact, everyone believes that the forecast of Internet is that it will continue to grow. According to Internet study group Forrester Research estimates that Americans will buy $ 7. 3 billion in groceries online by 2300. Forrester Research expects the consumer-direct grocery channel to grow from $235 million in 1998 to $10. 8 billion in 2003, an average annual rate of over 115%, and total Internet spending to be over $108 billion by 2003 (History of grocery industry).
This growth rate expected to be driven by rapid development of the online sales channel and favorable demographic trends. Peapod especially has a tremendous market potential in it. Pros: Penetration— Peapod was a pioneer of the online grocery industry, getting its start on the Internet well before the Internet becomes a global phenomenon. Peapodfs first strategy was forming alliances with traditional grocery retailers.
The company chose a retail partner in each geographic area where it operated and used the partnerfs local network distribution centers, in order to pick, packed, sold, and delivered their products to customers. This strategy had made the companyfs growth high and steady during the late 80 s. Also, the company made improvements in its Web site (web) and invested in software technologies to efficiently operate its entire system. Moreover, to enhance awareness of the Peapod brand among all users, the company spent huge amount of money in its marketing and advertising budget, which was focused on growing and building the customer base and helping the company to increase its profitability. These strategies certainly helped Peapod enter the market and experience it firsthand.
In 1997, Peapod realized the fact that the company was losing money and was not making profits substantially. Its original, partner-based business model entailed too high a cost structure, and was too cost-push for the company to achieve profitable growth. At this point, Peapod made a good decision on shifting to a new business model using a local company-owned, company operated central distribution warehouse to store, pick, and pack customer orders for delivery. Expansion— Peapodfs growth strategy consisted of aligning cross-functional strategic initiatives, organizational strengths and alliance relationships (History of grocery industry). This has allowed Peapod to expand into additional market areas and to creating abilities to move beyond other groceries and adding altogether new products and services. As in expanding its product offerings, Peapod had recently formed a strategic alliance with Walgreens; this allowed Peapod to not only offer health and beauty products, but also household hardware, small appliances, electrical supplies, and so on.
This certainly shows that Peapod is expanding its product and service diversity, in order to satisfy its customers. Vertical Integration— Peapod is pursuing a backward vertical integration in its market. At the beginning, Peapod was merely selling and delivering products of its partners to customers. Afterward, Peapod adopted a new business model that allowed Peapod to rapidly expand the scope of its operations, which enabled Peapod to increase its efficiencies in fulfilling customersf orders and satisfactions. Peapod did this by building distribution centers of its own and stocked them (12, 000 items) with a variety of products that it buys from large manufacturers at wholesale prices. This definitely gives Peapod some control over its costs.
Peapod also decided to pursue its expansion by expanding its products and services. It also began offering its own product brand. Cons: Geographical Expansion — In the near future, Peapod plans to enter new U. S markets to reach a total of 40 markets. This goal, however, seems hard to achieve as Peapod is lacking the financial resources needed to conduct such expansion. The major impediment to Peapodfs strategy was the potential shortage in its capital.
In fact, Peapod has already depleted much of its cash reserves to cover for cash flow losses from current operation (Eisner & Belmont, 2000). Strategic Alliances — In its first business model, Peapod relied on forming alliances with many local traditional grocery retailers. This helped Peapod penetrate the market and learn valuable experience and information about the prospects of this new market. Also, it helped Peapod reduce its risks at a time when there was no guarantee about how customers will respond to online grocery. Most important, it helped Peapod offer diverse types of products to customers that its partners were carrying. However, these alliances also limited Peapodfs growth by making the company unable to control its costs.
Nevertheless, Peapodfs alliances had both positive and negative effects on the company. Currently, Peapod is building its own distribution centers in order to achieve lower product costs and maintain control of its inventory. But in the mean time, the company is still forming new partnerships such as with Walgreens that would help it offer new lines of product to customers. Again, this will help Peapod expand its product offerings in a sense, but also will limit its ability to cut costs involving such new product lines.
Business-level strategies Pros: Differentiation— Mentioned before, Peapod was the early adopter in e-commerce, inventing an online home shopping service for grocery items years ahead of the commercial emergence of the Internet. It had distinguished itself with others at that time, and so will in the future. Although there are more and more competitors entering in the online grocery business, Peapod still continue to reinvent itself and refresh its image to the customers. To build customer loyalty, Peapod tried to send the same delivery person to the homes of repeat customers.
Peapod is also attempting to diversify and expand its products and services to exceed those of its competitors. Market Focus— Peapod created its market to sell groceries online to a target group of consumers that include particularly women who are savvy with computers; and mostly from a middle and upper income household, which covered a median annual income over $60, 000. It focused on adults that were stressed for time, or simply do not enjoy grocery shopping. Instead of focusing on a broader range of customers like the traditional grocery retailers, Peapod had a very specific and narrow market focus.
Recently, Peapod has come to realize the importance of increasing customer base and traffic as well as increasing the frequency and size of their orders. Additionally, since the Internet is becoming readily available to people of all backgrounds, Peapod will broaden its market focus to include not only with PC savvy adults, but also with people that do not have the time or do not enjoy grocery shopping regardless of their financial backgrounds. Peapod is also broadening its market focus by offering new product lines and building its own distribution centers. Quick Response— Peapod management is aggressively pursuing ways to fine-tune all of its new systems it had implemented. As the company began shifting from supermarket partnerships to centralized distribution model, it re engineered its product distribution and order fulfillment practices. New warehousing, order picking, and delivery routing software and systems had been designed and put in place.
As a matter of fact, Peapod now owns a sophisticated computer software that manages deliveries by taking account factors such as traffic jams, rush hours, road construction, and so on. If an item is out of stock, the device will note the out-of-stock status and automatically directed the picker to the customer designated substitution (Eisner & Belmont, 2000). Moreover, Peapodfs easy-to-navigate Web site had given the customers variety of high functional features to use. Peapod believed that this would help encourage repeat purchases and attract new users. Cons: Cost Leadership— In the online grocery shopping industry, consumers are extremely sensitive on price. Unfortunately, many online grocery prices are above those of supermarkets, and most shoppers are unwilling to pay extra for the convenience of home delivery.
Therefore, Peapod has to achieve a cost structure that would allow it to be price competitive and lower the costs of picking and delivering individual grocery orders and to have sufficient margins to report profits (Eisner & Belmont, 2000). Operation-level strategies Pros: Core Processes— In order to respond to the fast changing market, Peapod adopted a horizontal organizational structure instead of the slow, expensive and bureaucratic vertical one. Apparently, this horizontal organizational structure offers Peapod the advantages of being fast in quickly respond, less expensive to help the company save some money, and less bureaucratic, which reduces both customers and personnel frustration. It helps Peapod to become more competitive in the online grocery market. Demand Management— Peapod’s main objective is to maintain its current customers. It has then been focusing on customer service and satisfaction, from ordering to delivery to billing.
By tailoring the fulfillment process to each market, Peapod has built the flexibility to effectively manage all of the customers demand, thereby influencing the customer’s satisfaction all the way through to the last mile of delivery. Beginning with Peapod’s website, management has focused on providing the consumer with a satisfying and productive shopping experience. In order to ensure that delivery to the customer’s home maximizes satisfaction, Peapod’s drivers provide customer care right at the doorstep, by delivering and unloading groceries in the customer’s kitchen (by request) and obtaining feedback from customers on the service. Order Fulfillment— In the past, Peapod relied heavily on its alliances to sell and deliver groceries to customers.
Today, however, the company is using its centralized model to support its own distribution centers in order to gain control over its costs. To fulfill customersf orders, Peapod has developed a tracking system to create a customer database that is rich with information on customer purchasing behaviors. This data allows Peapod to drive the size of the shopping basket and make purchase suggestions to consumers, which eventually increase the average order size and promote profitability. As mentioned earlier, the company uses a state-of-the-art computer software system to manage its deliveries in a timely manner.
It also uses an easy to navigate website for customers to place their orders and monitor its inventory using handheld scanning devices to keep products readily available and not be out of stock. The management studies of their customers buying habits also allow Peapod to offer its customers exactly what they want and need. Cons: Product Development— Although Peapod is trying to offer some of its own high-margin private brand products, there are hardly any information or details that were available for these products or their development. We suspect that these products are likely to be generic and likely be cheaper versions of other brand.
Products will most likely be packaged differently (for differentiation purposes) in order to be high-margin products for Peapod. In addition, Peapod lack in R&D programs. Consequently, Peapod is unlikely to have a serious core process of product development. Alternative Solutions To ensure that we have come up with one of the best possible solutions, the CiscoKids have devised three plans from which we chose the best for our recommendation. We used the TOWS matrix, provided in the appendix as a guide to designing our solutions. Plan 2.
Increase product diversification through innovative marketing ideas such as link selling to renew Peapodfs pioneer spirit. We believe that increased sales from these types of offerings will increase sales to a level that Peapod could realize economies of scale and force costs to the absolute minimum. Increased profits can then be used to fund continued growth both at home and abroad to achieve early penetration of foreign markets. This plan requires a great deal of marketing as well as planning and testing. Due to the risk involved a uniform process of implementation and control should be established to promote successful ideas, but to immediately eliminate unsuccessful ones. Plan 3.
This plan focuses on the development of many centralized distribution centers throughout many markets. By making Peapodfs successful centralized distribution centers the key to its success, we plan to exploit their just-in-time inventory system to become a low cost leader and reuse profits to fuel further expansion. This idea is a good option; however, it requires a lot of capital to get going. Since Peapodfs capital reserves are virtually depleted, this plan would require a significant amount of debt leveraging to make it happen. Furthermore, Peapod may not have a mature enough management team to maintain control of a company whose business plan focuses on rapid expansion. Plan 1.
This is the plan which we chose for our recommendation. Specific details of plan 1 will be revealed in the following sections. Evaluation and Justification of Recommendations Recommendations: Mission • Revise the mission statement • Build a strong brand image by its mission statement We propose Peapod to revise their mission statement that will create a worldwide brand image. gTo revolutionize the way you shop and to be the #1 worldwide interactive shopping provider. h The mission statement conveys a company that is dedicated to innovation in all areas of its operations. The mission statement does not include groceries because of Peapod’s plans to diversify its product assortment in the future.
Peapod will not just be the pioneer of online grocery shopping, but will soon create a worldwide brand image to be the #1 shopping provider. Objections • Set time frames for each objectives • Measure its success quantifiably • Revise each objective and create new objectives Here are some of the existing objectives revised: -To increase the average sales by 5% in the next 6 months. -To build a #1 worldwide brand image for interactive shopping provider -To increase a customer base by 50% globally and nationally by 2003. -To reduce the cost of fulfillment by 10% each year.
Global-level Strategies • License supermarkets to utilize Peapodfs online system for its own operations. • Minimize Peapod liabilities through Foreign Direct Investments. The fluidity of the PC market globally and internationally has provided many opportunities for E-commerce. Peapod holding the reign the first online grocery store in the United States opens the doors to reach larger markets internationally. The U.
S. market compromises of only 5% of the worldfs population. The lack of knowledge about international markets regarding business practices, consumer behaviors, value systems, and culture may pose as a shortfall for the company. To remedy such deficit Peapod should consider joining forces with not just wholly-owned grocery stores, but through horizontally integrating itself with the different distribution channels involved in the grocery industry to create synergy. Peapod should consider licensing investors and supermarkets to use its online ordering system and to set-up distribution centers in its markets. Licensing in this case would allow Peapod to build a brand image globally, without having to provide any capital but share profits.
Corporate-level Strategies • Redesign Peapodfs expansion logistics based on a marketfs potential. • Vertical Integration through acquisitions. Peapod currently operates in eight different markets domestically. The companyfs overall revenues grew in 1996 at $27 million to $73 million in 1999.
However, the company has not become profitability since 1996 because of the high operational cost. The financial statement, however, does not reflect each stores individual performance. For each operation growth, Peapod should analyze each marketfs overall financial performances over the past years. After closely analyzing each market Peapod should set a companyfs standardized financial performance for each marketfs anticipated profitability.
On the average each marketfs household is at 586, 700; the largest market consisting of 3 operations is located in Texas 2, 191, 000, and the smallest located in New York with approximately 226, 000 households. Currently, there are four distribution centers located in Chicago, San Francisco, Massachusetts, and New York. The absence of a distribution center in the companyfs largest market is quite alarming when the smallest market has its own distribution warehouse. Peapod should consider restructuring and diversifying its expansion strategy.
Restructuring is a result of a companyfs business units under performing financially, compared to other units, therefore, affects the companyfs overall financial performance. We are introducing two newly designed expansion strategies that will make Peapod more profitable. The first model is designed for developed Peapod markets with its own centralized distribution centers. The company should strategically map out the potential markets around its existing distribution centers and buyout supermarkets that can be utilized to reach targeted markets. The buyout strategy would give Peapod more control for its overall operations and significantly reduce the operating cost.
The second model is solely designed for untouched markets. Unlike the first model that we presented for developed markets the second model should be used for penetrating a new market. Peapod should first consider acquiring unprofitable supermarkets, if none exist, the company can purchase any supermarkets that can help Peapod build a customer base. A year after the acquisitions Peapod should then build its own distribution centers centrally situated in close proximity to its supermarkets. Business-Level Strategies • Become the Lowest Cost Leader in online grocery retailer • Reserve capital for R & D department The high operating cost from supermarket operations makes up almost 70% of Peapodfs revenues. Currently, Peapodfs charges for delivery and prices its products a little above its competitors to cover its high operating cost.
The only way Peapod can lower its prices is if Peapod acquires supermarkets, therefore, having more control over the cost of its internal operation. Peapodfs current marketing efforts are among the most efficient in terms of utilizing its tools on the internet. Although the company is the pioneer of online grocery; however, the company has failed in sustaining its competitive advantages over its competitor. In order to be the worldfs leading provider the company must be creative and innovate to changes in the marketplace.
Peapod must reserve some capital for R&D. If an R&D department does not exist Peapod should set up a department that is committed to innovation. Operational-Level Strategies • Explore different mediums for order taking • Continuously improve our Just-In-Time to increase delivery efficiency and reduce operation cost • Global Positioning System (GPS) The introduction of computers is still new to many households in the U. S. and consumers still remain skeptical about transactions taking place on the internet. Therefore, Peapod should consider offering different ordering system to its consumers such as voicemail ordering system and directly ordering from sales representatives.
By offering more ordering alternatives Peapod can expect to broaden its customer base from computer savvy individuals to computer illiterate individuals. One of Peapodfs strength is its Just In Time inventory system. Therefore, Peapod must continuously improve its J. I.
T. system that would allow the company to reduce its operation cost. Then it must create two models that would be designed for its supermarket and distribution center. We propose Peapod to introduce a Global Position System as a value-added service to its customers and to improve its ordering processes.
The GPS will allow customers to check the status of their orders to reassure them their order was received and processed as efficiency as possible. The GPS will work hand in hand with J. I. T.
system to keep track of all delivery vehicles and make sure there will be a vehicle ready for pick up at the supermarket or distribution center. Moreover, it will also improve the lines of communication between the driver and ordering centers. Implementation The strategic alliances of the different channels would pull each otherfs core competencies and complement each otherfs weaknesses to formulate dominant online grocery retailer. Building a strong backing from other experienced channels would pose a threat to potential competitors, and would possibly intensify barriers of entry. This expansion strategy will efficiently allocate liabilities, and share profits would off-set the cost to start from scratch and build Peapodfs own centralized distribution centers for Peapod. In the next one to two years Peapod should start doing research about international markets and should follow the PC penetration into different markets.
By 2005 Peapod should have already built a $5 million worldwide customer base. Despite Peapodfs ability to increase the companyfs revenue existing relationships with supermarkets, it is one of many reasons why Peapod has not become profitable. The lack of control in its supermarket distribution has given supermarkets the higher edge over Peapod. Consequently, Peapod must allocate its revenues to cover its high cost in order to operate for supermarkets, and later absorbing the remaining losses. Through acquisitions of supermarkets, Peapod would have more control of the budget for operation expense, additional revenue for gin-stores sales, retain existing customers, and reach larger markets. In the next year Peapod should start looking for potential partnering stores and buy them out.
By 2001, following the acquisitions Peapod should open distribution centers close to its markets. Through the buyout approach, Peapod would gain control over operations, reduce the cost of operation, retain its existing customers, gain market share, reach untouched markets, obtain capital from its in store sales, and increase its overall profits. In the next year following acquisitions, we forecast the following for Peapod. Peapod’s Pro Forma Statement of Income, 2001-2005 ($000) Revenues 2005 2004 2003 2002 2001 Net product sales 123, 304 107, 221 93, 236 81, 075 70, 500 15% yearly increase Total Cost and expense 64, 062 71, 181 79, 091 87, 879 97, 644 10% yearly decrease Operating Income 59, 241 36, 040 14, 145 -6, 804 -27, 144 Evaluation & Control Methods for Continuous Review and Improvements Company strategies canft be implemented or executed well without a number of support systems for business operations. For Peapod to promote its strategy more sufficiently, Peapod cannot hope to provide excellent delivery service without a computerized order system, an accurate and expeditious handling system. Peapod has a Web site designed to capture behavioral information from its users; this site is to provide user with broad access using a standard web browser and reduce telecom costs.
Peapod claims the site could reduce number of clicks a typical shopper might need by 50% (history of grocery, h 2000). Also, this tracking data allowed Peapod to generate and evaluate the quality of its services in order to identify opportunities to cross-sell additional goods and services. However, this is not enough. If Peapod wants to expand itself more thoroughly and deeper into the domestic and international market; it will need to restructure itself in a more cost effective way.
TQM-Total Quality Management To maintain quality control over all segments of the company, Peapod will implement a company wide commitment to total quality management. This will be a top down process with top managers leading the charge. Peapod will ingrain TQM into its culture. TQM will also be a motivator as employees will be given greater responsibility to oversee production output and have a greater say in how things are done in the company. This step will also create a sense of company pride as the product becomes more representative of the knowledge workers of this company. GPS— a satellite navigation system A new effort to use GPS positioning to track truck drivers in order to reduce cost of delivery operations would be a great method for Peapod to achieve profitability.
Peapod can design a computerized scheduling system that could keep track on data of the trucks that are making deliveries. This data would ensure the time is used sufficiently without wasting any valuable time. Suppose that Peapod has only three truck loading spots at a distribution center, to ensure no time is being waste and to promote delivery quality, no more than three trucks are allowed to load at the same time. And while some trucks are loading, in the meantime, other trucks can go to the warehouse to pick up more items. To achieve this, Peapod could install interactive media screens in each delivery trucks, providing just-in-time information about products items. And constantly monitoring consumer-based locations, provided by GPS.
Online grocery retailing is particularly well-suited to using technology to manage the numerous and frequent changes in prices and promotions, process frequent transactions, collect purchasing and behavioral data, and utilize this data to drive volume. Recognizing these benefits, creating a strategy-supportive system (GPS) is what Peapod needs; this would allowed Peapod to incorporate unique capabilities and functions into its sophisticated operation system. Buyout Strategy— Peapod chose a retail partner in each geographic area where it operated by forming alliances with traditional grocery retailers and used its partnerfs local network of retail stores to pick and pack orders for delivery to customers. This did give Peapod some great opportunities at the beginning. However, now these partners turned out to be a huge problem for Peapod instead. Mentioned before, the company should strategically map out the potential markets around its existing distribution centers and buyout supermarkets that can be utilize to reach targeted markets.
This merging activity would give Peapod greater control over its delivery products and prices, attract and retain customers, involve in deeper penetration, and this would come along the power of controlling their operation cost more efficiently. Evaluate Financial Performance— Furthermore, it is very important for Peapod to evaluate the financial performance that each of its individual market is doing. In fact, Peapod has nft been putting much effort in analyzing its existing markets performances. Peapodfs absence of not demonstrating significant outstanding and weak financial performance would lead to insufficient use of its capital and resources.
Therefore, to closely examine each marketfs financial performance, Peapod should set a standardized performance evaluation method to anticipate profitability. When transactions data are available, projected revenues can be generated on a day-to-day basis, and with each marketfs expenditures estimated to an appropriate degree. Peapod dynamically generates its system based on customer preferences, consumer profiles, and other variables. Peapodfs new strategy interface would provide consumers with an efficient shopping experience and provide more options on its delivery products and services. These new features would encourage repeat purchases and serve as a differentiating factor for Peapod from other e-retailers.
As a result, Peapod has to become more proactive in running their business, not just being reactive. Peapodfs existing strategy can only guarantee for the short-term future, but not in the long run. The improvements of Peapodfs leading-edge system will support the companyfs strategy to develop, and the enforcement of Peapodfs financial performance will evaluate its activities continuously and boosts its competitiveness against its rivals. In addition, the real-time information spawned by the Internet allows company to manage and monitor implementation initiatives and daily operations more effectively. In conclusion, the combined effects of these features and processes would create the synergy by merging altogether. Justification Our plan is extensive covering all of the major areas of management, but how do we know it will be successful? Through our research we identified the key success factors common to companies that are successful in the online grocery industry.
We also identified the controllable and uncontrollable issues which a company must overcome or deal with effectively to become successful in this industry. Our plan of action is designed to target these issues to immediately increase the performance of Peapod. We have developed a plan which stresses total quality management at all levels of the enterprise. Therefore, our plan addresses all of the controllable quality issues brought up earlier in our analysis. Through the use of TQM, we fill that more value will be added to Peapodfs products and that customers will verify this through increased sales from current customers as well as new customers. TQM at the marketing level means that marketing will be more efficient at reaching target markets will result in increased purchases by first time customers.
TQM at the web site design level will mean that more of the new first time buyers will continue to return to the site to repeat the good experience they had with their first purchase. The result of these changes will be increased sales, lower costs, and increased profitability for Peapod. Profitability is the only true way to safeguard the company from a poor economy, changes in preferences, or difficulties due to unexpected weather conditions. By providing the company with solid tools to stay a leader in its market, we will be placing a security blanket around the company to protect it from the uncontrollable issues which may spring up at any time.
Conclusion To conclude this project, the CiscoKids offer our best wishes to Peapod in their future success. We feel that we have provided a thorough evaluation of Peapod, and have given them a solid plan which will solve current problems and put them on a course of growth and success. Appendix SWOT Analysis Figure 2. Michael Porters Model of Competitive Forces. External Environmental Changes for 2000 Political-legal Changes The Social Security Administration (SSA) supports the Agency fs mission of the U. S.
Thus, the presidents budget request increases up to $441 billion. SSA supports expand electronic service delivery (ESD), such as to implement new Internet transactions, to change employees wage report electronically, to verify social security numbers, and to pilot internet capacity. The U. S.
Congress has passed two major internet regulation bills. The Communications Decency Act included broad restrictions on illicit Internet content was passed in 1996. But in 1997, the Supreme Court declared the Act unconstitutional. The Child Online Protection Act was more narrowly written was passed in fall 1998. The Act was stopped by a temporary injunction pending a lawsuit on its constitutionality. The injunction was extended in February 1999.
each time the apparent will of the people was thwarted by the federal courts, whose interpretation of the constitution is more expansive than that of the national legislature. h (Of Leary) The USDA and the National Organic Standards Board is in the process of reviewing nearly 700 pages of proposed rules and says it will release final National Organic Program regulations before the end of 2000. At the end of the year, an 18-month phase-in program is scheduled to begin. Joe Smillie, senior vice president of the Organic Trade Association said, gc becoming familiar with the rules and regulations are a prime concern because it is these regulations that will drive the industry.
h Economic Changes The Internet has accelerated economic growth in the U. S. For instance, it becomes much easier to provide services of all types, such as banking, education, consulting, retailing, and so on. The Internet gold-rush of the past few years has increased demand for living and working space in San Francisco. The National Association of Home Builders found that San Francisco continues to be the least affordable city in America. Rents are also high, doubled from 1996.
gAnger at the rising cost of living in San Francisco is often directed at the edit. comf people who move into formerly bohemian neighborhoods. h (Brown) Based on the concentration of jobs in vulnerable industries, overpriced housing and current economic growth, the following markets are likely to be hurt disproportionately during the next recession. The most vulnerable mortgage markets are San Jose, CA, Wichita, Ks, Des Moines, IA, New York, NY, Detroit, MI, Greenville-Spartanburg, SC, Stamford-Norwalk, CT, Orlando, FL, Salt Lake City-Ogden, UT, San Francisco, CA, and Boston, MA. (Winter) Technological Changes Y 2 K program had improved four-digit from two-digit to prevent data entry errors.
However, it did nft help to prevent the issue. For example, if users accidentally types 0200 instead of 2000, Y 2 K couldnft help prevent these kinds of errors, but Y 2 KFOX helped to prevent these errors. New and better technologies are out. There are new security softwares like Network Associates McAfee VirusScan 4. 0.
2, Symantec Norton Your Eyes Only 4. 1 and the New Internet Security Systems Internet Scanner 5. 8 out. Most of us connect to the internet only from a PC. A PC at the office, one at home, and maybe a portable we take on the road are all used to send and receive e-mail, browse sites, and get information. According to Michael J.
Miller, author of Connect Everywhere, g Palm devices, Pocket PCs, and other personal digital assistants are gaining Web connections and wireless modems. Pagers are gaining Internet access features as well. Mobile phones are quickly becoming Internet-enabled. h Social-cultural Changes Web site companies, such as Yahoo! , e-Bay, and E-Trade Group Inc were sabotaged by a denial-of-service attack by hackers.
Moreover, a lot of Internet users were uncomfortable and feel unsafe to use e-mail or to buy online products. Parade magazine conducted a poll for internet commerce. What matters most in a retailers Web site are quality guarantee, easy to find what I want, offers low prices, and good return policy. According to the Hartman Groups just-concluded gThe Organic Lifestyle Shopper Study, h more traditional supermarkets than ever are stocking more organic products and are seeing a rise in organic sales across the board, led by organic produce, dairy and baby foods. what the study also reveals is that while some traditional supermarkets have opted to create a natural and organic store-within-a-store concept to market this merchandise, mainstream customers are reluctant to purchase products displayed within this format.
h (Janofff) According to Laurie Demerit tt, executive vice president of The Hartman Group, consumers will buy products they feel are healthy for them, but brand awareness of particular products in this sector is very low. h Peapod’s Metropolitan Markets, Household Exposure, and Retail Partners, February 2000 Metropolitan Market Ares Served Estimated Number of Area Households, 1998 Retail Partners Peapod Distribution Center Chicago, ILLinois 1, 732, 000 Jewel Food Stores Yes Columbus, Ohio 398, 000 Kroger Houston, Texas 939, 000 Randalls Food and Drug Boston, Massachusetts 1, 242, 000 Stop and Shop Yes San Francisco and 840, 000 Certified Grocers Yes San Jose, California of California, Andronico’s and Walgreens Dallas, Texas 995, 000 Tom Thumb Austin, Texas 257, 000 Randalls Food and Drug Long Island, New York 226, 000 Giant/Edwards Yes Super Foods Stores Peapod’s Statements of Income, 1996-99 ($000, Except Per Share Data) @ @ @ @ 1999 1998 1997 1996 Revenues Net product sales $57, 305 $43, 487 $22, 015 Member and retailer 9650 11234 4558 Interactive Marketing 1460 2222 1069 Licensing 850 Total revenues $73, 154 $69, 265 $56, 943 $27, 642 @ Costs and expense cost of good sold $55, 585 $53, 903 $40, 823 $20, 485 Fulfillment operation 24478 17196 14469 6889 General and administrative 9788 8029 5935 3785 Marketing and selling 7168 7545 7726 4739 System development and maintenance 3543 3386 1696 1124 Depreciation and amortization 2222 3264 1234 651 Total costs and expenses $102, 784 $93, 323 $71, 883 $37, 673 Operating loss ($29, 650) ($24, 058) ($14, 940) ($10, 031) @ Other income (expense) Interest income 1384 2683 2044 537 Interest expense ($187) ($190) ($83) ($72) Net loss ($28, 453) ($21, 565) ($12, 979) ($9, 566) Net loss per share ($1. 62) ($1. 27) ($0. 87) ($0. 82) Average shares outstanding 17542990 16964439 14915734 11664956 @ @ @ @ @ Peapod’s Balance Sheets, 1997-99 ($000) @ @ @ @ 1999 1998 1997 Assets @ Current assets @ Cach and cach equivalents $3, 343 $4, 341 $54, 079 Marketable securities 4, 707 15, 836 8, 798 Receivables 1, 498 2, 516 1, 195 Prepaid expenses 473 186 444 Other current assets 993 974 228 Total current assets 10, 991 23, 853 64, 744 Property and equipment @ Computer equipment and software 6, 767 4, 010 4, 499 Service equipment and leasehold improvements 4, 189 2, 147 1, 053 Property and equipment, at cost 10, 926 6, 157 5, 552 Accumulated depreciation 4, 290 i 2, 252 j i 2, 301 j Net property and equipment 6, 636 3, 905 3, 251 Noncurrent marketable securities and restricted cash 3, 143 15, 213 @ Capitalized software development costs – – 998 Goodwill – – 117 Total assets $20, 780 $42, 971 $69, 110 @ @ Liabilities and stockholders’ equity @ Current liabilities @ Accounts payable $6, 147 $3, 442 $7, 514 Accrued compensation 497 802 1, 258 Other accrued liabilities 1, 897 2, 688 926 Deferred revenue 615 1, 000 1, 969 Current obligations under capital lease 690 590 727 Total current liabilities 9, 846 8, 522 12, 394 Deferred revenue 95 448 1, 212 Obligations under capital lease, less current portion 1, 129 395 701 Total liabilities 11, 070 9, 365 14, 307 @ @ @ @ @ @ Stockholders’ equity @ Common stock ($0.
1 par value, 50 million shares authorized; @ 17245828 and 16852557 shares issued in 1998 and 1997) $183 $172 $169 Additional paid-in capital 71, 698 64, 319 63, 148 Note receivable from officer i 2, 269 j @ Unrealized gain on available-for-sale securities i 118 j 83 – Accumulated deficit i 58, 513 j i 30, 060 j i 8, 495 j Treasury stock i 1, 171 j i 908 j i 19 j Total stockholders’ equity 9, 710 33, 606 54, 803 Total liabilities and stockholders’ equity $20, 780 $42, 971 $69, 110 @ @ @ @ Internal Factor Analysis Summary (IFAS) Internal Strategic Factors Weight Rating Weighted Score Comments STRENGTHS First mover advantage. 08 2. 16 Peapod began with the first mover advantage but more online companies are beating them to the punch now with new ideas Strong customer base. 1 3. 3 Peapod has a strong over 90, 000 customers Easy to use high tech web site. 13 4.
52 Peapod. com is a gmultifeatured, highly functional web site JIT (just in time) inventory. 1 4. 4 A highly computerized inventory system allows peapod to maintain a just in time inventory Extensive use of customer tracking tools. 04 5. 2 Peapodfs website tracks user preferences, tracks key strokes, and tracks many other demographics about customers Strong supplier network chain.
1 2. 2 Peapod forms alliances with grocery chains to supply customers their groceries Product diversification. 05 3. 15 Peapod offers similar items found in grocery stores and drug stores Extensive advertising and marketing… 06 4. 24 Advertising alliances with online networks with same market and alliances with web sites and magazines WEAKNESSES High delivery costs.
06 3. 18 Additional fee of around $10 dollars for delivery charged Online security risk. 05 4. 2 Hackers pose a risk to Peapodfs web site and database Stock prices recently fell. 06 3. 18 1997 offering at $16 dollars per share to around $8 – $12 dollar per share in early 2000 Declining reserves of financial capital.
11 2. 22 Current assets dropped from $64, 744, 000 in 1997 to $10, 991, 000 in 1999 High operating costs due to perishables. 06 4. 24 Perishables make cost of doing business high Total Weighted Score 1.
00 3. 19 KEY STRATEGIC FACTORS Weight Rating Weighted Score Duration Comments Opportunities Alliances with grocers 0. 06 3. 18 short Alliances with grocers who want to go online in exchange for access to grocers distribution and customer base Acquisitions of grocery chains.
09 4. 36 intermediate By acquiring small grocery chains, Peapod can gain access to new markets Room for more product diversification. 07 2. 14 long Increased product diversification can attract new customers Increased profits from using centralized distribution warehouses. 1 2. 2 long Centrally located distribution centers reduce distribution costs Strengths First mover advent.