February 15, 2005, 12:00 AM

Why Peapod finds organic foods a natural way to increase web sales

Peapod is carrying more than 300 Wild Oats products in nine food categories ranging from bulk foods to dairy products. The reason for the new relationship with Wild Oats: booming web sales.

Kurt Peters

Executive Editor

Peapod is now carrying more than 300 Wild Oats products in nine food categories ranging from bulk foods to dairy products. The reason for the new relationship with Wild Oats, the nation`s second largest natural and organic foods supermarket chain: booming web sales.

In the high-volume, but thin-margin grocery business a single digit growth rate can give cause for celebration. But in the online space, many web grocers, including Peapod, are used to double-digit growth rates. In 2004, Peapod, one of the oldest e-commerce sites in the food and beverage space and a business unit of Royal Ahold, turned in another solid performance by generating Internet sales of about $183 million, up 25% from $147 million 2003.

Altogether, Peapod, which carries about 10,000 SKUs, now does business in eight states and continues to expand its product lines. For instance, Peapod is expanding its business line of organic foods by instigating a new marketing relationship with Wild Oats Markets, the nation`s second largest natural and organic foods supermarket chain, with a family of more than 100 stores in 24 states and British Columbia, and annual sales of nearly $970 million.

Under the arrangement, Peapod is now carrying more than 300 Wild Oats products in nine food categories ranging from bulk foods to dairy products. The reason for the new relationship with Wild Oats is simple: booming web sales. “In the bricks-and-mortar grocery business, organic products are considered successful if they produce a 20% growth rate,” says Tony Stallone, Peapod vice president of merchandising. “In comparison, in 2004 our organic business increased by 67%.”

Peapod, which enjoys a sales conversion rate of more than 14% and an average ticket size of $145–among the highest in the online food and beverage space–says organic sales are growing mainly because of increased customer demand. “85% of our customers now have broadband compared with an industry average of around 50%,” Stallone says. “That’s getting directly into the kitchen where more of our customers are placing orders and shopping for more organic products.”

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