Online Grocer Shifting Operations

Friday, September 8th 2000, 12:00 am
By: News On 6

CHICAGO (AP) — Online grocer Peapod Inc., still consolidating after rapid expansion nearly forced it into bankruptcy, is ending service in four U.S. cities and strengthening operations elsewhere by buying an ailing rival's assets.

Peapod disclosed its departures from Columbus, Ohio, and three markets in Texas — Houston, Dallas and Austin. It also announced the $12 million purchase of's operations in greater Chicago and Washington, D.C.

The Skokie, Ill.-based cybergrocer said Thursday the moves will speed its entry into the Baltimore-Washington market and provide needed new facilities, enabling it to expand in its headquarters market of Chicago.

New York-based, meanwhile, gets an infusion of cash it desperately needed to stay afloat. But its investors were unconvinced — shares fell 15.6 cents to close at 84.4 cents by Thursday on the Nasdaq Stock Market.

Peapod stock, which climbed as high as $16.38 a share last November, was up 18.8 cents to close at $2.188 on the Nasdaq Stock Market.

``With a lot of these concepts, it's kind of a wait-and-see,'' said Steve Chick, an analyst for J.P. Morgan. ``It's going to take time, but over time the online grocery business still has a lot of potential.''

Wall Street darlings only a year ago, online grocers have struggled along with other dot-coms as venture capital shrank and investors tired of financing ambitious expansion plans that didn't pay off.

With grocery margins thin, the costs of packaging, delivery and building their own warehouses drained the cash of the few companies in the business. Most have been bought out by offline competitors that already had warehouses and distribution centers.

Peapod narrowly escaped bankruptcy when Dutch grocery retailer Royal Ahold, owner of the Stop & Shop supermarket chain, bought a majority stake in April. But it lost $23.1 million on sales of $47.6 million for the first half of 2000.

Marc van Gelder, Peapod's president and chief executive officer, said the latest retooling, including the purchase of distribution centers in Gaithersburg, Md., and Lake Zurich, Ill., ``better positions us to build a profitable business.''

``As Peapod's immediate growth focus is along the East Coast and in Chicago, we have taken a major strategic step by purchasing Streamline's Chicago and Washington, D.C., operations and by exiting Texas and Ohio,'' he said.

Chick said Peapod's moves, as well as its backing by a company with existing grocery stores, gives it the best chance of success, although that's far from guaranteed.

Peapod, founded in 1989, remains under big pressure from venture capitalists and competition from Foster City, Calif.-based Webvan, which swallowed rival in June.

Peapod has 135,000 customers in Chicago, Boston, Long Island, southern Connecticut, the San Francisco Bay area, Washington, D.C., and the four markets in Texas and Ohio where it will stop delivering after Sept. 15. Delivery fees range from free to $9.95 per order.


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