Peg Merzbacher, Peapod’s director of marketing, boasts of lower prices on offer, saying, “We have suburban supermarket prices in the city.”
That poses a challenge for FreshDirect, whose orange-and-green delivery trucks have ruled Manhattan’s double-parked streets for a decade. Now its drivers jockey for curb space with vans from Peapod. Although it’s a relatively new kid on the block in New York, Peapod is the biggest Internet grocer in the U.S., thanks in part to partnerships with Ahold’s big brick-and-mortar Stop & Shop and Giant supermarket chains along the East Coast. It waited until 2011, though, to enter Manhattan, where FreshDirect estimates it has 80 percent of the market. To catch up, Peapod’s offering free delivery to new customers and cheaper prices on everyday goods.
That approach lured enough shoppers to give Peapod a sales gain of more than 10 percent in 2012, with a similar increase forecast this year, says Merzbacher. The growth will help Ahold reach its goal of tripling global online sales to €1.5 billion ($2 billion) by 2016. U.S. consumers will buy $21 billion of groceries on the Web in 2016, a 52 percent jump over last year, forecasts Forrester Research.
FreshDirect expects shoppers will remain loyal to the fresh foods and prepared meals that helped push its sales to about $400 million last year, according to the company. “There’s room for two competitors,” says Tom Meyvis, a marketing professor at New York University’s Stern School of Business. “What Peapod can do is to focus less on the gourmet segment and emphasize regular products at a competitive price.”
