Peapod sees Indianapolis as big growth market

Peapod Inc. has discovered fertile ground in Indianapolis despite a crowded field of grocery competitors, said Scott DeGraeve, senior vice president at the country’s oldest and biggest online grocery-delivery service.

That is why the Chicago-based company wants to open a 50,000-square-foot local distribution center that could employ up to 238 employees over the next four years and make central Indiana one of the company’s bigger markets.

Peapod, which operates in 24 markets in the Midwest and eastern United States, began offering its service in Indianapolis in late 2010 and has done "really well," DeGraeve said, with sales doubling each year since it arrived.

The company averages about 1,300 orders per week locally. Each order costs a minimum of $60 and averages about $150, the company said, bringing area sales to above $10 million annually.

“We’re excited about how things have grown there,” said DeGraeve, who is based in Chicago and manages supply chain development for the company. “People there have really taken to the need for the service.”

Peapod’s plan is to spend about $6.5 million to lease and equip one-quarter of an existing 200,000-square warehouse at 9222 E. 33rd St. Nearly $5 million of that investment will go toward refrigeration, racking, technology and logistics equipment.

The company’s warehouse requirements are typically more stringent than those of average distribution users. The centers require multiple temperature zones for food storage. And the company carries more than 12,000 products, so state-of-the-art order-fulfillment equipment and technology is essential.

About 25 percent of the new employees will be drivers. The rest of the jobs will be in warehousing, order-fulfillment, technology, food-buying and management. Average wages for the new jobs will be $15 per hour.

The expansion is a big jump for Peapod, which right now operates with 15 local employees—all drivers who pick up orders at an area cross-dock facility from trucks arriving from Lake Zurich, Ill.

Peapod, founded in 1989, fills most orders on a next-day basis and charges from $6.95 to $9.95 per delivery. All orders are placed online. As of last year, more than a third of the company’s more than $550 million in overall sales came from orders placed by smartphone.

DeGraeve said a dedicated center should allow the company to keep doubling sales annually in Indianapolis over the next half-decade.

“We’ve done such strong business there that it makes more sense to have a local distribution center,” he said. “This is a very important step. We wanted to be confident that the growth is there, and it has been.”

The plan hinges on the company’s ability to land tax breaks from the city and state.

The company is asking the Metropolitan Development Commission for a seven-year tax abatement that will save the company an estimated $313,587, or 62 percent, on personal property taxes over the abatement period.

MDC staff said the company will pay about $191,384 in personal property taxes over that period and an estimated $58,266 annually after the abatement ends.

Peapod’s preliminary abatement request is scheduled to be heard at Wednesday afternoon’s MDC meeting. If approved, the final resolution would be voted on by the MDC on June 18.

The company is discussing a separate incentive deal with the state.

“This is a big investment and we really need these to make it economically viable,” DeGraeve said of the incentives.

Peapod will be trying to grow in one of the nation’s most competitive grocery markets. The city is home to Kroger, Marsh, SuperTarget, Wal-Mart, Meijer, Aldi, Whole Foods, Fresh Market and Earth Fare. In addition, Giant Eagle and Fresh Thyme have plans to enter the market.

“Competition is everywhere, in every market, and we all compete for overall food dollars,” DeGraeve said. “But we’re different. We offer affordable convenience, and we offer great value in the service we’re providing.”

The company expects to see growing competition in the online grocery delivery industry as more big players enter the market. In Indianapolis, however, Peapod and homegrown company Green BEAN Delivery are the biggest players.

Green BEAN, founded in 2007, has more than 200 employees and 10,000 member customers in Indiana, Ohio, Kentucky and Missouri.

DeGraeve said he doesn’t consider Green BEAN a direct competitor because it’s not a “full-line grocery delivery” service, and it operates in a different niche.

Unlike Peapod, Green BEAN uses a membership model and concentrates on organic produce and all-natural products.

“We’re going down two different paths,” said Matt Ewer, Green BEAN’s co-founder and president.

Ewer said he isn’t greatly concerned about Peapod’s expansion plan because the company has been in Indianapolis for three years and hasn’t prevented his company from experiencing rapid growth.

“This is really a continuation and a progression,” he said. “It’s not surprising. Everybody is trying to grow.”

Ewer said he expects to see even more competition in the local online delivery market, a trend that might actually boost business as consumers get more comfortable shopping for groceries online.