Peapod (www.peapod.com) and Two Way Communications, Chicago (www.twowaycom.com), which handles out-sourced sales and development for Peapod, also announced that Kimberly-Clark Corp. and Conde Nast Publications are joining the grocery service's growing lineup of sponsors. Conde Nast's Glamour, Self, Mademoiselle, Vogue, Bon Appetit and Gourmet will be advertised and sold on the service. Kimberly-Clark will advertise a variety of its paper products.
Current advertisers include Kraft Foods, Tropicana Dole Beverages, Lever Bros., Ralston Purina Co. and Frito-Lay.
With the release of Peapod 5.0, Thomas Parkinson, exec VP-chief technical officer at Peapod, is hoping more advertisers will take advantage of the new ad formats, which include streaming audio and animation through Macromedia's Flash software.
Current advertising is limited to static banners.
Peapod will also be able to link to an advertiser's Web site, avoiding a duplication of creative efforts.
Some 15% of Peapod's users currently access its service through the Web while the rest use the dial-up method, a Web-based private line via Internet service provider Concentric Network Corp.
Advertiser Web links "are a clear advantage," said Fred Schneider, worldwide director of electronic commerce, Andersen Consulting.
Links will allow users to tap into sponsors' Web sites for specific marketing messages and creative executions, Mr. Schneider explained.
INTEGRATING WEB ADS
Added Mr. Parkinson, "The key is integrating all our sponsors' content within Peapod." He said the challenge was bringing in more advertising without slowing down the shopping process.
This is a critical issue, especially as Peapod begins to migrate to the Web, something it's been slow to do because most of its users are women without ISP accounts. However, this fall it's beginning discount incentive programs to encourage Web access and negotiating co-branded marketing efforts with several ISPs.
"I'm hoping that in a year, I won't have to provide direct dial-up service for customers," Mr. Parkinson said. "That's my dream."
Although Mr. Parkinson added that Peapod will keep the dial-up service as long as there's consumer demand for it.
Aside from freeing Peapod from managing a private service, a Web storefront also opens the door to more marketing opportunities, said Tim Dorgan, exec VP at Peapod.
"It'll be a way to pre-test Web content as a selling tool," he said, explaining how marketers' Web sites and promotions can be tightly tied to users' weekly purchase behavior. The 5.0 version of the software also includes more narrow targeting capabilities, including ads timed to appear at a precise minute.
But going to a Web-based service also poses challenges, many of which Shoppers Express (www.shopx.com) has encountered in the last year, said Allison Abraham, president-chief operating officer of Shoppers Express, which also handles phone and fax delivery orders.
Ms. Abraham believes Peapod will be hard pressed to bring its graphically rich interface to the Web. After a year of testing, Shoppers Express stripped away many of its graphics because users complained they took too long to download. "Our customers, who are primarily women, want it fast and efficient," she said.
Being an early Web service has also helped Shoppers Express lock up strategic relationships, Ms. Abraham added, noting deals with Digital Cities LA-a division of America Online-ISP Earthlink, Cox Interactive and sites such as Internet Baby, which she said have all helped drive traffic to Shoppers Express.
But Peapod's Mr. Parkinson disagreed: Peapod is different from other services because it keeps a direct connection with its users, as opposed to standard Web connections, activated when a user clicks on something on the screen. This and the use of Macromedia Flash are both designed to prevent lengthy downloads. He also said Peapod's waiting to become a Web-only service has helped it focus on its key market-busy women, many of whom are off-line.
The online grocery market is exploding. Andersen Consulting predicts that in the next seven to 10 years, 15 million to 20 million households will shop via alternative methods. While the market is crowded with many smaller competitors, Peapod and Shoppers Express are the largest services and compete directly in two markets: Dallas and Atlanta.
Peapod, which recently issued an initial public offering, reported 50,000 subscribers, and is also in Chicago, Boston, San Francisco, Houston and Columbus, Ohio. Shoppers Express, which declines to disclose its subscriber base, is additionally in Los Angeles and Phoenix.
One big difference between the two services is that Shoppers Express currently doesn't sell advertising on its service, although Ms. Abraham said it is working on plans to roll out ads in the next six months. "It was a question of priorities," she said. "We were creating a pipeline and distribution channels, and advertising will be a by-product of that."
Meanwhile, advertising and analyzing consumer shopping behavior for custom promotions have been a big part of Peapod's business model. Tropicana, for instance, just finished a breakfast campaign, testing various promotions pairing the juice with different breakfast foods.
Andersen's Mr. Schneider said that to be competitive in online shopping, Peapod and Shoppers Express ultimately will have to move to a system that directly fulfills orders in a warehouse without having to contract orders in retail stores.
"Peapod and Shoppers [Express] will have to migrate to an equation that eliminates the store," Mr. Schneider said. "That significantly changes the economics."