Does Peapod’s retreat from the Midwest spell trouble for e-grocery?
Peapod, founded in Evanston, IL in 1989, plans to shutter its Midwest division, apparently due to newer competition and a lack of traditional brick-and-mortar locations in the region to support BOPIS.
Ahold USA, which acquired Peapod in 2000, said the closing will allow the company to expand omnichannel capabilities on the East Coast, where Ahold operates the largest grocery retail group. Banners include Stop & Shop, Giant Food, Giant/Martin’s, Food Lion and Hannaford.
“This was a difficult decision given Peapod’s rich history in the Midwest,” Ahold Delhaize USA CEO Kevin Holt said in a statement. He added, “This move will enable us to fully focus on markets where we have strong store density, leading market share and a longstanding heritage of customer loyalty.”
The division, covering Illinois, Wisconsin and Indiana, comprised $97 million of Ahold’s total online revenue of $1.1 billion in the U.S. The company will eliminate approximately 500 jobs, closing a distribution center and food preparation facility in Lake Zurich, IL; distribution facilities in Chicago, Milwaukee and Indianapolis; and a pickup point in Palatine, IL. Peapod Digital Labs’ will keep its headquarters in Chicago. Ahold said it still expects 30 percent e-commerce sales growth in 2020.
Peapod, the first online grocer in the U.S., has faced increasing competition from Amazon in the Midwest. The 2017 acquisition of Whole Foods further provided Amazon with numerous pickup points. Peapod only had one pickup spot, in Palatine.
Instacart also arrived in Chicago in 2013 and quickly signed up Whole Foods, Dominick’s, Costco and Mariano’s for home delivery in the area. Instacart users have access to a wider variety of products across banners compared to the more limited selection Peapod carries.
Speaking to the Chicago Tribune, Scott DeGraeve, a former SVP at Peapod, said it was “surprising and disappointing” that Peapod’s Midwest division wasn’t acquired by another grocery chain with stores in the area.
“It’s becoming clear that the success in the online grocery space is a true omnichannel approach,” added Mr. DeGraeve, now co-founder and COO of Locai Solutions, an e-commerce consulting firm for grocery stores. “What’s successful is the brick-and-mortar retail that also offers the online offerings rather than pure-play online only.”
- Ahold Delhaize USA to Close Midwest Online Grocery Sales Operations; Focus on Accelerating East Coast Omnichannel Growth – Ahold Delhaize USA
- Peapod’s Midwest exit demonstrates lasting power of brick-and-mortar – Crain’s Chicago Business
- Peapod, based in Chicago, is shutting down grocery delivery in the Midwest and cutting 500 jobs – Chicago Tribune
- Ahold Delhaize USA’s Peapod Midwest division to close – Supermarket News
DISCUSSION QUESTIONS: Does Peapod’s closure of its Midwest operations underscore that having nearby pickup locations is essential to e-grocery? What other factors may have played a role in Peapod’s exit from the Midwest?