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Peapod expands service
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August 7, 2001: 11:15 a.m. ET
Online grocer moving into Maryland, D.C. area vacated by failed rival
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NEW YORK (CNNfn) - Peapod Inc., the only online grocer that has survived in the Washington market, said Monday it will expand delivery service to more areas of the District of Columbia and to a portion of Prince George's County, Md., in an attempt to capture the customers of former rival HomeRuns.com, which folded abruptly less than a month ago after running out of venture capital.
According to the Washington Post, a 30 percent increase in Peapod's orders since HomeRuns.com went out of business July 12 convinced the company this was the time to court former HomeRuns.com customers desperate for someone to pick out their produce and lug in their dog food, said Mike Brennan, Peapod's senior vice president for product management and marketing.
The company has hired nearly 50 stockers and drivers in the past two weeks to handle the surge in demand, as well as to prepare for the planned expansion, bringing its total number of employees in the D.C. area to about 200, he said.
Before HomeRuns.com went out of business, a Peapod expansion into the eastern part of the District and Prince George's County "was moving into a competitive area," Brennan said. "Now, without a competitor there, it may be cost effective to expand." Boston-based HomeRuns.com claimed 90,000 customers in Boston and Washington, but the company declined to say how many of those were in Washington.
HomeRuns.com's delivery areas covered parts of Prince George's County and the District. Peapod, which fills orders from a Gaithersburg, Md., facility, served a more northwesterly area.
This the second widening of Peapod's service area since the company opened in Washington last November. The firm, which initially concentrated on the Northern Virginia and Montgomery County suburbs, began checking off the virtual shopping lists of Howard County residents in April.
The company now can reach 1.3 million customers, an increase of almost 40 percent.
It's not the first time Peapod (PPOD: unchanged at $2.13, Research, Estimates) has waited for a rival's supply of venture capital to dry up, then pounced on customers already accustomed to ordering groceries over the Internet.
Peapod entered the D.C. market by purchasing a distribution center from Streamline.com, an online grocer that went out of business after less than a year in the D.C. market.
Unlike Webvan Group Inc., another online grocer whose expensive and vast distribution network was blamed for its demise by many analysts, Peapod has avoided large upfront investments in warehouses. Instead, the company teams with local supermarkets and often fills orders out of the converted stockrooms of its partners to keep initial costs low.
In Washington, Peapod relies mainly on partner Giant Food Inc. for in-store advertising and fills all of its orders out of the 93,500-square-foot Gaithersburg warehouse.
Peapod has experienced financial problems, but Royal Ahold NV, the Netherlands-based global food company that owns Giant, bought a controlling stake in it in April 2000 and provided funds to help it stay in business.
Ahold announced in July that it would acquire the remaining shares of Peapod for about $35 million. The deal is expected to close in the third quarter.
Peapod also attributes its ability to stay afloat amid an onslaught of folding companies to co-branding and co-marketing with a well-known grocer. The company is able to purchase its goods cheaper but sell them at competitive prices. It also tends to start small in a market and expand as demand grows.
"We do a lot of direct mail rather than television advertising," a Peapod representative said. "We are prudent in the way we spend, and then we expand."
The 11-year-old company, which racked up $93 million in sales last year, has turned a profit in three of its five markets, which encompass a total of 120,000 customers.
"The Washington area is one of our fastest growth areas," Brennan said. "It's really a wired market with high Internet penetration."
Company officials declined to disclose the number of customers in the D.C. area. 
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Peapod
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