retail news in context, analysis with attitude

The New York Times reports that over the weekend, “armed with a hefty budget for parking tickets, Peapod (planned) to roll its delivery trucks through big sections of Manhattan, and a new kind of food-delivery war will be on.”

The Ahold-owned e-grocery pioneer, which has long served the suburbs of New York City that are home to the Stop & Shop stores that also are part of its corporate family, is expected to launch a price war in the borough as FreshDirect looks to defend its home turf. The story notes that Peapod “had stayed away from Manhattan because of the difficulty of maneuvering through traffic, finding places to park trucks and, in some buildings, hauling groceries up several flights of stairs.” But over the past few months, Peapod started circling the borough, delivering to some areas of Brooklyn and then to certain blocks on Manhattan’s Upper East Side.

David McHugh, Peapod’s vice president and general manager, tells the Times that “Peapod had budgeted twice as much money to pay parking tickets — the scourge of grocery deliverers — in Manhattan as it had for other cities it operates in, like Boston and Washington. But he would not say how much that was. As Peg Merzbacher, Peapod’s director of marketing, put it: ‘You have to sell a lot of cans of peas to cover one parking ticket.’ She said the company would have two workers in each truck so that one could move it if a ticket agent arrived.”

(Sources have told MNB in the past that FreshDirect spends as much as a million dollars a year on parking tickets, though the company has never confirmed that number.)

The story also notes the big difference between the two companies - that Peapod has an integrated business model that depends on the existence of physical stores for fulfillment and marketing purposes, and FreshDirect is a “pure play,” which no relationship to a bricks-and-mortar operation.
KC's View:
The story seems to think - or at least quotes more people who think - that this gives FreshDirect an advantage, especially since it currently says that its average order in Manhattan is $120 and that its business is growing.

But I’m not sure this is true. I think Peapod is a formidable competitor, and that it can afford to spend some money building market share in Manhattan; I also think that while Stop & Shop may not have any stores in Manhattan, it has a familiar brand name that Peapod can use to leverage its own advantages.

Plus, who is to say that Stop & Shop might not develop a physical presence in Manhattan? After all, there could be a bunch of A&P stores, and even some Borders stores, coming on the real estate market, and it is entirely possible that the company could be looking to create a new urban format that could allow it to serve Manhattan with a fully integrated offering.

(I have to believe that they are at least discussing this at Stop & Shop headquarters. After all, if companies like Walmart and Target are coming up with small-store urban formats so they can build market share, it would simply make competitive sense for Ahold to do the same.)