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Peapod Inc.: SWOT Analysis
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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 e90s 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 donft 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 Peapods 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, andNetGrocer.com. The retail grocers industry includes all grocery chains, small grocers, and specialty grocers, and includes names like Krogers, Safeway, and Albertsonfs. 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 responsesf 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 Bernadino 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 FedExfs 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 buyersf 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 Y2K program couldnft help to prevent data entry errors, but Y2KFOX 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 • Y2k 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 gSmart Carth, gExpress Shoph are designed for consumer convenience while shopping, whether it be for new or previous customers.
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