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E-commerce: The consumer wins

Updated: May 3, 2013 12:14PM



Originally published August 7, 2001

BY TERRY SAVAGE

You might not get too worked up about e-commerce, but the idea of having someone else do the routine and time-consuming task of shopping for your groceries is certainly an enticing one. That’s especially true if you can get good prices and great service. Which is why the online grocery shopping war is heating up in Chicago.

Peapod started its computerized shopping service in Chicago a decade ago--before there ever was an Internet. Consumers could telephone, fax or send their orders via a special computer program that dialed from your computer to theirs.

Over the past decade, the Peapod delivery trucks became a familiar site in the Chicago area, and many other cities around the country. People learned to trust that their Peapod shoppers would pick the best produce, cuts of meat or frozen foods from the grocery store, and deliver the order to their door within a dependable time frame.

Webvan vs. Peapod

Here’s how Webvan and Peapod compare at ground zero of the Online Grocery War:

Both companies deliver groceries--and a lot more. Webvan bills itself as ``the last mile of e-commerce,’’ promising delivery of everything from book and office supplies to wine and flowers. Peapod has rushed to catch up, and now is opening online stores for baby needs, books, pet supplies, and holiday items.

Peapod provides free delivery only on orders over $75. Under that amount, there’s a $9.95 charge. Webvan promises free delivery of all orders for the first three months, and then no delivery fee for orders over $50, and $4.95 under $50.

Peapod will package your groceries, and guarantee that your ice cream will be frozen solid, even if you have the delivery made to a secure back porch or receiving room. Webvan brags that more than 90 percent of the time it delivers your groceries within the promised half-hour window, so you can arrange a convenient time top be home and accept your order.

Gomez.com, which is the independent rating service for online e-businesses, gives Webvan the top rating overall because its site is the fastest. But it ranks Peapod No. 1 for ease of use in ordering from its Web site.

Keep in mind that ordering groceries online is not about saving money, though prices should be competitive. It’s all about valuing your time. What’s it worth not to negotiate the grocery store aisles, unload the shopping cart, watch some teenager stack the apples on top of the bread, load up the car, then lug the bags up to your back door or apartment?

(If you want to do your own research, each has a Web site--www.peapod.com and www.webvan.com--where you can learn more about the company as well as ordering products from them.)

Let the stock analysts watch the revenues and profits. Bottom line: the busy consumer is the hands-down winner in this e-commerce battle.

Terry Savage

The company looked like a sure winner as the Internet and e-commerce picked up steam. Then competition intervened. Peapod stock went public three years ago and traded at $16.38 a share in November--but it closed Wednesday at only $2.38.

In fact, the company narrowly escaped bankruptcy earlier this year before being rescued by an investment from Dutch food distribution company Royal Ahold.

Competition came in two forms. First, major grocery chains such as Albertsons started to get into the act by creating their own online grocery-shopping services. Then along came a company called Webvan, with a slightly different--and more efficient--model. Its plan was to build huge, centralized food distribution warehouses, instead of sending shoppers into grocery stores to fill orders. So Peapod also moved toward the centralized distribution model, burning through its available cash and causing a financial crisis.

Webvan was started by the founder of Borders Books & Music and soon gained a prominent CEO--George Shaheen, former head of Andersen Consulting. Market analysts crowned Webvan the winner, and its stock rose to $34 a share amidst e-commerce euphoria last November. But Wednesday Webvan closed at $5.19, and revenues have not lived up to expectations.

With three major distribution centers up and running (in San Francisco, Sacramento, and Atlanta), Webvan arrived in Chicago this week.

Perhaps a lingering reflection of the market’s high hopes of a year ago, the overall market capitalization of Webvan is about $1.7 billion. Peapod started smaller, raised less cash, and now has only a $50 million market capitalization.

Analyst George Dahlman, who follows the companies for Piper Jaffray, says Peapod is no longer a stock play because it is controlled by Royal Ahold. And he notes that the issue is not only whether the companies can gain revenues, but whether they can ever become profitable in the thin-margin grocery business.

Financial comparisons aside, the two companies’ rivalry over shopping supremacy has set the stage for what analysts are calling the showdown in Chicago. And Chicago consumers are benefitting from the contest.

And that’s the Savage Truth.

Terry Savage is a registered investment adviser for stocks and commodities and is on the board of directors of McDonald’s Corp. and Pennzoil-Quaker State Co. Send questions via e-mail to savage@suntimes.com. Her third book, The Savage Truth on Money, recently was published by John Wiley & Sons Inc.



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