CHICAGO -- Two leading home-shopping services, Westwood, Mass.-based Streamline and Peapod, Evanston, Ill., report their companies have achieved strong consumer acceptance, with customer retention rates of over 90% for Streamline and per-order totals averaging $110 for Peapod.
"Consumers are looking for simplification," said Tim DeMello, president and chief executive officer of Streamline. "We're disaggregating product from a physical store and putting the information about it on a computer screen."
DeMello and John Furton, senior vice president of retailer development and customer support at Peapod, spoke at a workshop on Virtual Retailing at the Food Marketing Institute's Convention and Educational Exposition here earlier this month.
DeMello predicted that consumer-direct services will become a large part of grocery retailing when they are perceived as the most convenient way to get products; when they provide information consumers want, such as nutrition, recipes, meal planning and price comparisons; and when they achieve pricing parity, where the only extra costs are those associated with delivery.
Both Streamline and Peapod offer home delivery of groceries, though they have significant operational differences. Supervalu, Minneapolis, supplies grocery products to Streamline's fulfillment center in Westwood, Mass. From there, Streamline delivers products to a freestanding, three-temperature unit in a customer's garage.
This unit allows Streamline to offer a wide range of products and services, such as dry cleaning, video rental and photo processing, though DeMello said grocery products account for nearly three-quarters of its business. The company serves 500 households in the Boston area, and plans to move into other areas across the country, beginning with the mid-Atlantic region later this year.
Peapod uses retailers as co-branded partners, with its own employees picking, packing and shopping at selected stores in several major metropolitan markets for home-shopping customers.
Streamline's DeMello said each household serviced by Peapod represents $400 to $450 in monthly revenues, and that in the Boston area, the company has a 92% retention rate of customers. In a one-year period, households place an order with Streamline 47 out of 52 weeks, he said.
Streamline's variety of home-delivered products replaces customer shopping trips to an average of six to eight retailers per week, "which saves customers two to three hours per week," DeMello added.
"Our goal is to become like the cable television industry, where we provide a regular service to a household for a regular fee," he said.
While Furton did not indicate specific figures on Peapod's customer loyalty, he did say that customers used it for replenishment shopping, with order totals averaging $110. He also noted that most Peapod home-delivery customers also go to stores to shop.
Both company executives said that their interaction with customers has a strong influence on purchases. For example, DeMello said that products traditionally bought on impulse, such as candy and snacks, were lower for home-delivery orders than for in-store purchases.
Streamline's customer research indicates "candy sales are 32% lower, and snack sales are 15% lower with Streamline orders," said DeMello. "The average consumer says they spend 5% less with Streamline than they would in the store."
But beverage sales average 20% higher compared with in-store purchases, said DeMello, while produce sales are about even.
Well-known consumer brands and private-label items do well with home-shopping services, according to Peapod's Furton.
"With our shopping service, the customer can ask for a product that is the 'best value,' and that's often a private-label product," said Furton.
He added that Peapod's retailer partners make the category management decisions about what products are offered to their home shoppers. However, Peapod does accept category-exclusive advertising on its web site, which is the principal means customers use to place their orders.
Such advertising can be targeted more specifically than traditional media, said Furton. For example, a customer purchasing a large quantity of one brand of soft drink might receive a coupon offer on that web page for a competing soft drink brand. The customer could click on the offer and receive the discount on the home delivery order, he added.