Webvan's Demise Spells More Sales for Peapod

Online grocer Peapod said this week that its sales in Chicago had risen by 50 percent since Webvan shut down July 9.

The only tactic Peapod used to encourage the development was to add a button to its Web site welcoming former Webvan customers living in Chicago. First-time visitors also have been encouraged to read a letter from Scott DeGraeve, vice president of the firm, about the grocer's history in the city.

Without offering specific dollar figures, Peapod chief financial officer Andrew Parkinson said his firm's order volume “had gone up significantly.”

Parkinson said the news showcased that his company's warehouse fulfillment model in Chicago can succeed — despite grocery industry analysts' statements that the model is unfeasible and was responsible for taking Webvan down.

“We can get the order volume we need there,” Parkinson said. “We don't think the warehouse is going anywhere.”

The warehouse gets periodical shipments from a food distribution center in Cleveland owned by Peapod's parent firm, Dutch food conglomerate Royal Ahold. The Ahold relationship lets Peapod buy food at lower costs than the prices Webvan and other defunct grocers such as Homegrocer.com had to pay.

Ahold also lets Peapod use its store chain Stop & Shop to pick and pack orders in the Long Island, NY, and Boston markets.

Tesco PLC and Safeway Inc. will pick orders out of stores in a similar fashion as part of a deal that the two companies announced three weeks ago. While the firms have not detailed the extent of their e-commerce plans, the capability that lies in Safeway's 1,700 stores suggests that the companies could be a national force.

And while Peapod does not have plans to expand west of Chicago, where Safeway has a considerable presence, Parkinson said his firm still perceives the Safeway/Tesco deal as a threat.

“They are our biggest competitor,” Parkinson said.

In related news, Ahold said that it would buy Peapod's remaining shares after being a 58 percent shareholder in the online grocer since April 2000. The purchase totaled $35 million.

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