Speech Summaries

Marc C. van Gelder President and Chief Executive Officer Peapod

Grocery's Multichannel Opportunity

Marc C. van Gelder, President and CEO, Peapod, talked about the evolution of the online grocery industry, from its days of being "overhyped" through the "underhyped" market that it is today. He began by addressing several hurdles to consumer adoption. Although some say it's too expensive, the Peapod service actually costs only $4.95 for orders over $100. And although people claim not to trust buying perishables online -- they say "I like to pick my own tomato" -- Mr. van Gelder joked, "How many people do you think picked that tomato before you?"

He described Ahold as a Dutch company with a strategy, unlike that of Wal-Mart, of being very local. "Wal-Mart thinks that Bentonville is the center of the universe," he said. "But we don't think that Amsterdam is the center of the universe. We believe in local brands." Peapod has reached operational profitability in four out of five markets. The average customer order is $135, and 10% of customers are small businesses. The average number of items per basket is 58. Although it can take up to 1.5 hours to create a shopping list for the first time, return customers are asked if they want to see their previous shopping list. This list is an important tool, as once an item is on that list, it's likely that consumers will buy it again. Promotions that get products onto customers' lists are also incredibly important.

There was initial concern that Peapod would cannibalize Stop & Shop's sales, but it actually increased the company's total share of wallet. Peapod customers don't just shop online. They shop online and in stores. From the first to the second half of 2001, there was a 16% increase in in-store sales and a 53% increase in online sales. Mr. van Gelder clearly outlined this and other advantages of a multichannel strategy: capturing a greater share of wallet, increasing customer loyalty, reaching a bigger potential area, allowing greater communication and relationships with customers across new touchpoints, and leveraging online learnings to the offline world. The online channel, "is here to stay," he concluded, "And Ahold intends to be one of the winners."

Questions And Answers

Q: What's been the effect of the tragic events in Washington, DC, on business in that area?
A: Business there is up. We see a similar impact on sales if there is a snow storm. Our business is pretty seasonal -- in the winter people tend to buy more from Peapod.

Q: If you consider the fulfillment costs per order, do consumer fees make up for it?
A: That's the wrong question. Fulfillment is the wrong focus. The key component of cost is not fulfillment, it's transportation.

Q: What about expansion? What cities are you are looking at?
A: Westchester, the New England area. Then we'll move down the eastern seaboard.