Peapod Continues to Cash in on Failed Competitors

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Peapod says its sales have jumped 30 percent in northwest Washington, D.C., since HomeRuns.com shut down about a month ago.


"We attribute the added sales to the idea that former HomeRuns.com customers like ordering online and have migrated to our service," said Peapod spokeswoman Paula Wheeler. She also said that little marketing has been done to attract former HomeRuns customers.


The sales growth in Washington follows an announcement last month that its Chicago sales jumped 50 percent during the two weeks after Webvan went out of business.


Spurred by the good news, Peapod said last week that it has begun taking orders from ZIP codes in northeast Washington. In addition, it will move into the neighboring area of Prince George's County, MD, later this month and southeast Washington in September.


Peapod plans to blanket the markets with a large direct mail campaign next month.


Fulfillment for the new service areas will come from its Gaithersburg, MD, warehouse facility, which also serves Fairfax County, VA; Montgomery County, MD; and northwest Washington. Fifty pick-and-pack workers have been hired to help absorb the added sales expected from the new markets.


The expansions contradict the steady reports by industry analysts that fulfilling food orders via warehouses is unprofitable.


Peapod also has seen the warehouse distribution model falter, closing its operations and a facility in San Francisco. The company also closed warehouses in Boston and Long Island, NY, in favor of picking and packing orders from the backrooms of area chain stores owned by its parent firm, Dutch food conglomerate Royal Ahold.


Nevertheless, Peapod seems determined to keep centralized distribution as a key strategy. One reason for its resolve is that Ahold improved the distribution centers' profit margins with bulk food shipments at supplier prices.


But despite being more than a year into the Ahold relationship, Peapod's Maryland and Chicago facilities have yet to turn a profit. Still, the grocer appears confident that the locations eventually will be moneymakers.


"We think the [Maryland] operation will be profitable by 2003," Wheeler said. "We understand that operational costs may go up with the expansions, but we feel like this is a viable business model."


Another potential challenge for Peapod is Safeway's plans to launch a national e-commerce initiative during the next year.


Safeway recently penned a deal with successful British online grocer Tesco that will result in the launch of Safeway.com. The two firms plan on leveraging Safeway's 1,500 stores for the picking and packing of Web orders.


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