Peapod certainly won the first-to-market prize -- but the competition is hot on its heels. HomeGrocer closed a $100 million round of financing in November and filed for an IPO in December. Webvan, which has committed to spend $1 billion on warehouses, went public last year and has a market capitalization of about $6 billion -- while Peapod's valuation hovers around $165 million.

But Peapod's sibling team seems pretty pleased that the world has woken up to their market. In fact, they're welcoming the competition, with the belief that more online grocers will help popularize the idea -- and maybe teach Peapod some new tricks. The company opened a 70,000-square-foot central distribution center near Chicago early this year and just launched its Peapod Packages service for shipment of items to nonlocal delivery areas, but the brothers Parkinson say they don't expect to grow the business too fast; they'd rather focus on human service than exponential growth and impersonal automation.

You were the first company to deliver groceries using online systems. What was your biggest technological disaster?

Thomas: Well, one of the biggest was when, early on -- in 1991 or 1992 -- my nephew [Andrew's son] came into my office, where the data center was. He saw the cigarette switch on the server and turned it off -- and brought the whole service down.

Andrew: That's my son.

Did it cause major problems?

Thomas: We were out for about five minutes before somebody realized what happened. The people that found out were our customer care people, because instantly their systems went off, so they came running upstairs.

Andrew: We've never had a major outage; we've had power outages here, but we have a backup generator.

Thomas: The most critical spot if we have a failure is at the warehouse. That's why you have to be careful about the amount of automation you put into the warehouse. If something fails and you don't have the backup to be able to pick those groceries and deliver them to the customers, you get a cascading effect. Because now you have all of these orders you can't deliver, and you've got to try to schedule them in for tomorrow, but there are already orders that are scheduled for tomorrow. So it can be a major disaster if your warehouse systems go down.

Our architecture from day one was a lot different from most because we create dynamic Web pages from the database -- they're not static -- so I think that scaling issues were more severe for a company like ours. You start to get more customers, and no matter what, more customers means more usage on your computers. We've always had to upgrade our computers about every 18 months. Every page is driven from the database -- custom making that page for the customer depending upon his profile. No matter what, that takes CPU power. But the benefit is that customers [have personalized] information, and that keeps a loyal customer.

How dependent are you on human labor? Are the grocery orders packed by people right now?

Andrew: Yes they are. There's no one that's not packing [orders] with people. It's just a question of how much automation you use. So to answer your question, the company is still very dependent on people, and we want it to be so, because one thing we learned early on is that technology has a way of isolating consumers. People are very important, whether it's the person picking out a good apple, or the driver at the door smiling and getting to know you. A lot of our business is about people.

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