Furthermore, Peapod may broaden the products available for purchase to include other home replenishment items, specialty food categories and non-food products. This should make the company more attractive as a takeover candidate. Risks Negative gross margins show that the business model is not currently working. In other words, the cost of sales is currently greater than sales. This may change as the company expands, but it is a definitely a red flag.
Competition also represents a major source of risk.
Peapod competes with a number of providers of grocery products and services, including traditional grocery retailers, other Internet-based grocery providers, and providers that fulfill orders obtained via telephone or facsimile. Peapod also competes with many other companies that seek to implement advertising, promotions and research programs for consumer goods companies. In addition, competition will likely intensify as more grocery retailers, online marketing services companies and information services companies seek to offer services in competition with Peapod. Large grocery retailers may initiate Internet shopping and delivery programs over time due to the large potential size of this channel, as well as the retailers' need to defend their traditional customer base. Additionally, new retailers are likely to emerge with warehouse-based distribution models in an attempt to lead the development of the new channel.