January 19, 2001, 12:00 AM

Peapod Gets 11th-Hour Reprieve

Don Davis

Editor in Chief

International food company Royal Ahold has purchased a 51% stake totaling $73 million in Web grocer (www.peapod.com) Peapod, saving the Internet pioneer from the compost heap. Under the agreement, Peapod will continue as a standalone company, and Ahold will supply it with goods, services and "fast pick" fulfillment centers, the companies say. Founded in 1989, Peapod has attracted 130,000 customers in eight metropolitan markets. But it has steadily lost money. Last year, for example, it lost $9 million on sales of $73 million.
      Earlier this month, investors withdrew an offer of $120 million in financing after Peapod CEO William Mallory abruptly resigned for undisclosed health reasons. Since then, the company has acknowledged that it was rapidly running out of cash and needed an investment or acquisition to continue operating.
      Ahold USA, through its five supermarket chains located along the eastern seaboard, operates 1,063 stores with 1999 sales of $20.3 billion. Peapod already works closely with Ahold's Stop & Shop in the Boston metropolitan area and Edwards in the New York area, both of which are suppliers.
      Through improved supply chain processes, the companies say, former mezzanine storage areas at Ahold's U.S. stores will be converted into "fast pick" fulfillment centers for Peapod. Peapod will use Ahold's real estate assets to open more than 50 of these centers in the coming years.

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