Industry watchers say it’s no longer a question of whether Internet grocery can be successful, but rather of how big it will become.

“Our business has doubled the last two years and we expect it to double again this year,” said head Mitch Rhodes, who labeled the growth “relatively explosive” for an industry with notoriously low profit margins.

Peapod LLC says it has 150,000 active customers in its delivery range, which includes Chicago and the East Coast, where it handles Internet shopping for chains like Giant and Stop & Shop. By 2006, Peapod expects to nearly double its reach, to areas serving 14 million potential households.

New York-based, which opened in fall 2002, now has about 100,000 active customers, a fourfold increase from a year ago.

“For the most part the demand has been greater than our ability to supply,” Freshdirect co-founder Jason Ackerman said, noting the company once had to refuse about 1,000 orders because it was overwhelmed. “When you deliver great food people love the convenience of it. If we delivered crappy food people wouldn’t be as excited.”

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