Online grocer Peapod Inc. announced an acquisition yesterday that will allow it to move into the Baltimore-Washington region and join with Giant Food Inc. to bring online grocery ordering and home delivery to shoppers.
Peapod, which is 51 percent-owned by Giant's parent, Royal Ahold NV, said it has acquired the Gaithersburg and Chicago operations of Streamline.com Inc., a Massachusetts-based online shopping and delivery service, for $12 million. Streamline will continue operating in Boston and New Jersey.
Peapod plans to fulfill orders through the former Streamline distribution center in Gaithersburg. It has also acquired the center's management and customer base.
Through a special buying arrangement with Ahold, Peapod will use Giant as its supplier, and sell online the products and brands carried by the Baltimore area's largest supermarket chain, said Paula Wheeler, a spokeswoman for Peapod.
"Baltimore-Washington is very attractive, and there is a strong retail brand there with Giant," Wheeler said.
Ahold has a similar arrangement with Peapod at its Stop and Shop chain in New England and offers online shopping as a service in its supermarkets in the Netherlands, Scandinavia and Argentina, said Hans Gobes, an Ahold spokesman.
Peapod's plans, part of a strategic move into the Baltimore-Washington and Chicago regions and out of the Texas and Ohio markets, dovetail with Giant's own plans to get into e-commerce. Giant had been exploring Internet shopping with hopes of offering it to consumers next year.
"Now with Peapod's purchase of some of the assets of Streamline, this makes it much more efficient for Giant, and will greatly help us accelerate our entry into Internet food shopping," said Barry F. Scher, a Giant Food spokesman.
Peapod will roll out its service sometime during the last quarter of the year, Wheeler said. Until then, consumers can continue to order online groceries through Streamline, she said.
Peapod's acquisition will make it the dominant online grocer, said Jeffrey W. Metzger, publisher of Columbia-based Food World. It will be joined in the Baltimore area early next year by Webvan Group Inc., which is buying HomeGrocer.com Inc., and will also offer online grocery deliveries.
Peapod's acquisition will benefit Giant's parent, Ahold, by giving it an online presence in addition to strong retail stores on the East Coast, said Burt Flickinger III, managing director of Reach Marketing in Westport, Conn. That will allow Ahold to be more competitive, especially against retail giant Wal-Mart Stores Inc., which is encroaching on food retailers' territory, he said.
"Unless you have a good 'clicks and bricks' business model, you will wind up ... facing some form of financial uncertainty," Flickinger said.
But Metzger said it remains unclear as to how best to offer online food retailing, how to capture the market and how to make the costly venture profitable. Online food shopping now accounts for less than 1 percent of all food retailing.
"We've been pretty skeptical about the whole e-commerce world of selling food," Metzger said.