Web grocer weathers storm--PPOD---
Inside
July 05, 2000
by Connie Guglielmo
Marc van Gelder is not your typical Internet executive for two reasons. First, he knows a lot about the business he's trying to make successful on the Internet.
Second, unlike would-be Internet entrepreneurs who've put their online ideas forward, hoping that a business model will follow later, he believes the key to success is having a profitable business model at the outset.
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The departure of Malloy ... prompted the collapse of a financing deal ...
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"I don't believe you move forward without profitability," says the 38-year-old former McKinsey & Co. management consultant.
"I'm not saying the company has to be profitable. But the model has to be profitable -- and you have to prove that you have a profitable model."
That's a tall order on the World Wide Web, where profitless dotcoms with questionable business models have become as American as apple pie. The order is made taller still by the fact that van Gelder is working for Peapod (PPOD), one of a handful of profitless consumer-commerce companies that ran into financial trouble earlier this year.
In Peapod's case, the online grocery pioneer nearly became part of Internet history when well-respected Chief Executive Officer William "Bill" Malloy suddenly resigned in March, citing "health reasons" after only six months on the job.
The departure of Malloy, a former AT&T Wireless Services (AWE) executive, prompted the collapse of a financing deal that would have seen five backers pour a much-needed $120 million into Chicago-based Peapod.
Though it had yet to turn a profit in its 10-year history, the company, ironically, had just announced its best-ever quarter in February, prompted by a 46 percent increase in orders.
Without the promised investment from Apollo Management LP, the Yacaipa Companies, Pequot Capital Management Inc., GRP II LP and Group Rallye, Peapod faced an uncertain -- and uncapitalized -- future.
The day the market was told of Malloy's departure and the financing fallout, the company also announced it had $3 million to cover an undisclosed amount of operating debt and that it had hired Wasserstein Perrella & Co. to help it define "strategic alternatives," including the possible sale of the company. Investors were not happy.
The news sent Peapod's stock -- which went out at $16 per share when the company went public June 11, 1997 -- plummeting more than four points, to less than $4 per share.
For a while, Peapod seemed destined to become one of an ever-growing list of ailing e-commerce contenders. But Peapod found itself a fairy godmother in the guise of a green grocer -- emphasis on "green."
In mid-April, Royal Ahold NV, a Netherlands-based food and grocery retailer, announced a rescue plan that included pouring about $73 million into Peapod for a 51 percent stake and a commitment to extend the online grocery service a $20 million line of credit.
Royal Ahold already operates a profitable online grocery-shopping service in the Netherlands and says the Peapod deal will expand that service in the United States.
In addition to the cash it needed to continue operations, Peapod also got two other things from Royal Ahold: a tie into Ahold's five U.S. supermarket chains -- encompassing more than 1,000 supermarkets and serving more than 20 million customers along the eastern seaboard -- and van Gelder.
G is for groceries
If there's anything van Gelder knows, it's how to get a head of lettuce into the hands of customers. For the past decade, the Dutch native, who holds an MBA from the Wharton School of Business, has built an expertise in operations and logistics while working on both sides of the Atlantic for Royal Ahold.
Before being named president and CEO of Peapod on May 2, van Gelder served as senior vice president of supply chain management and logistics at one of Royal Ahold's U.S. subsidiaries, the Stop & Shop SuperMarket Company, a New England-based chain.
There, he oversaw distribution and transportation, and was responsible for leading the supply chain management team to "improve and enhance the flow of product from suppliers to consumers," the news release announcing his appointment notes.
Stop & Shop VP was just one role he's played for the $31 billion company. Van Gelder was previously director of business development for Ahold in the Netherlands, where he was responsible for directing non-food programs for Ahold worldwide, and also managed projects for another Ahold subsidiary, Albert Heijn, where he was also involved in distribution logistics.
It's his mastery of operations and logistics -- coupled with his recent hands-on experience in the food-retailing business -- that has Royal Ahold and Peapod banking their future on van Gelder. And he knows it.
"Because I came from the strategy and McKinsey side, I don't have the traditional grocer background. But at Stop & Shop I gained the grocery experience and was able to combine that with the conceptual-strategy experience to help put new, computer-assisted ordering together," he says in lightly accented English.
"I bring a host of experience on how you pick product and how you lay it out. Somewhere in the company you need that link between experience and Web technology."
Though he had been on the job for less than three weeks at the time of this interview, van Gelder says he's already committed to devising a "strategic plan" for Peapod within 90 days.
A big part of that plan involves utilizing Ahold's existing five supermarket chains in the United States and its 1,063 stores to help build out Peapod's distribution capabilities -- one of the most serious weaknesses in the Peapod strategy.
Peapod was founded as a premium "store picking" service: After customer orders were placed using the company's then-proprietary software, Peapod's staff of personal shoppers would traverse local grocery stores, hand-pick the requested items and deliver them to customers.
In the past three years, Peapod recognized the limitations of its process and began forming alliances with regional supermarket chains -- including Ahold's Stop & Shop stores in the Boston metropolitan area and its Edwards chain in New York -- as well as establishing its own distribution centers. |
