Dive Brief:

• Ahold Delhaize will close Peapod’s online business in the Midwest later this month, according to a press release. The move will allow the grocer to turn further attention and resources to its East Coast operations, where it’s leveraging Peapod as a technology and fulfillment resource for its local grocery banners.
• The company will discontinue orders on Feb. 18 in Illinois, Indiana and Wisconsin, and will close distribution facilities in Chicago, Milwaukee, Indianapolis and Lake Zurich, Illinois, along with an order pickup location in Palatine, Illinois. Peapod Digital Labs will continue to operate out of its Chicago headquarters.
• Ahold Delhaize said it doesn’t expect a significant impact to its operating profits or free cash flow, and that it maintains the goal of growing its e-commerce business by 30% this year. Peapod’s Midwest division accounted for $97 million of Ahold Delhaize’s $1.1 billion in online sales.

Dive Insight:

Peapod grew up in the Midwest and had a long run as a standalone grocer in the region. But Ahold Delhaize has decided its best strategy is to pull back from its non-core markets and operate the brand in tandem with its hundreds of brick-and-mortar stores along the East Coast.

“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,” Kevin Holt, CEO of Ahold Delhaize USA, said in a statement.

Industry experts said Peapod's delivery-only approach in the Midwest limited its sales potential and ability to attract new customers. David Bishop, partner with Brick Meets Click, said his firm's research shows that in markets like Chicago, consumers are using click-and-collect more and more in addition to delivery, depending on their needs. Investing in pickup solutions in the region would have been too costly for the company.

Ioannis Pontikis, a Morningstar analyst in Amsterdam who covers Ahold Delhaize, said click-and-collect has become a key part of the grocer's store-focused online grocery strategy.

"The Midwest online operations accounted for a small portion of U.S. online sales and Ahold Delhaize lacked the physical presence to serve and grow this market through click and collect, which is the main focus for the group in the U.S.," he told Grocery Dive in an email.

Ahold Delhaize now offers pickup from hundreds of stores. It has also steadily incorporated Peapod’s technology — including routing systems, omnichannel loyalty programs and a back-end order selection application for click-and-collect — along with its brand power and expertise into banners like Giant and Stop & Shop as they build out their online shopping platforms. Last year, Ahold Delhaize launched two e-commerce brands powered by Peapod technology: Giant Direct and Giant Delivers. It also expanded Stop & Shop’s pickup availability, including same-day service, using resources from Peapod.

Ahold Delhaize was slow to leverage Peapod as a resource for its banner stores, accelerating integration efforts after its e-commerce sales fell behind competitors. In late 2018, Ahold Delhaize opened Peapod Digital Labs to centralize its innovation efforts and established ambitious goals of 20% e-commerce growth last year — which it achieved — and 30% growth this year.

Keeping the digital hub’s headquarters in Chicago will provide consistency for the team and help draw upon the city’s tech talent, JJ Fleeman, president of Peapod Digital Labs and chief e-commerce officer for Ahold Delhaize, said in the release.  

Peapod was founded in 1989 by brothers Andrew and Thomas Parkinson. It was one of the original online grocery brands, and it stayed afloat through the turbulent period for e-commerce sites in the late '90s — thanks largely to its acquisition by Ahold in 2000. The company continued to be one of the few online grocery options for consumers in the Midwest, but in recent years Amazon, Walmart and Instacart have ramped up their operations, making it tougher for Peapod to compete. Amazon Fresh will no doubt benefit as it now becomes the region's largest pure-play online grocer.

Although it’s pulling out of three states, Peapod's standalone service will continue to battle for online grocery dollars in major cities like New York, Boston and Washington, D.C., as well as the dense suburban markets surrounding them.