Peapod closing shop in S.F.

Online grocer Peapod is closing its doors in San Francisco on Sunday and is shepherding its customers to onetime rival Webvan.

A message on Peapod's Web site tells San Francisco customers they can continue buying their groceries over the Internet via Webvan. To comply with its privacy agreement, Peapod gave customers the option of whether they wanted their private information to be turned over to Webvan.

"To make it quick and easy to place orders with Webvan, we can transfer your previous orders and personal lists from Peapod to Webvan--and you'll receive $20 off your first Webvan order when we do," the message read.

Webvan spokesman Bud Grebey said that Webvan has agreed to pay Peapod an acquisition fee for every Peapod customer that "actually completes a transaction." Grebey would not reveal financial terms of the deal.

"It made sense for the two companies to come together," Grebey said. "We wanted to make sure their online customers still have options to continue shopping on the Web rather than go back into the brick-and-mortar world."

It's an opportune move for the struggling Webvan, which unveiled an aggressive ad campaign and a coupon program Friday to draw in more repeat customers.

Peapod did not return phone calls Friday.

Webvan and Peapod have battled to become the supreme online supermarket in the nation's most wired city for several years. Their discussions for swapping Peapod's customer list began last month.

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Peapod, the Web's second-largest grocer behind Webvan, reported its biggest quarterly loss in February and warned that it would run out of cash by the end of the year without additional funding. As part of its efforts to cut costs, Peapod said it would shutter its San Francisco operations.

Peapod got a reprieve last week when its majority stakeholder, Dutch grocer Royal Ahold, agreed to boost Peapod's credit limit from $20 million to $50 million.

Webvan has also struggled. The grocer is facing a cash crunch and last month introduced a new business strategy to save money and reach profitability sooner.

The deal marks one of the first times the companies have done business together. Webvan and Peapod have outlasted scores of failed dot-coms in the past year. The harsh economic environment is all the more reason for the companies to help each other out, Grebey said.

"We're all in this together," he said.