Dive Brief:

• FreshDirect recently announced in a blog post to customers that it is exiting the Philadelphia and Washington, D.C., markets this week. Final deliveries will be made on Saturday.
• The company did not comment on its performance in the two markets, but noted the pullback will allow it to “better serve our customers in the tri-state market surrounding New York City.”
• FreshDirect is the latest online grocer to pare back its service area. Earlier this month, Farmstead revealed it had stopped operating in four markets and now only operates in San Francisco, its home market.

Dive Insight:

After 10 years spent operating in New York City and surrounding areas, FreshDirect expanded to Philadelphia in fall 2012 and five years later entered the Washington, D.C. market. Between the two cities and their surrounding suburbs, the company provided service, which specializes in fresh and prepared foods, to hundreds of zip codes.

FreshDirect didn’t give an exact reason for exiting the two markets, but the moves come as high inflation and slowing e-commerce demand have bogged down delivery-focused companies like Farmstead, Gopuff and Instacart. Many consumers have fully resumed in-store shopping, and research shows that pickup service remains the most popular e-commerce channel.

FreshDirect faced a daunting challenge as a relative newcomer in two markets filled with established grocery players. It touts the quality of its fresh products as a differentiator — which can be powerful, but also requires deep investments in operations and routing technology. In 2020, FreshDirect opened a 10,000-square-foot automated micro-fulfillment facility at one of its D.C.-area distribution centers.

The company’s pullback echoes similar moves that other online grocers have had to take in recent years, underscoring the perils of pureplay online ventures. Amazon Fresh’s nationwide e-commerce expansion initially stumbled, and the company pulled out of several states back in 2017. California-based Good Eggs launched an ambitious push into markets like New Orleans and New York City before retrenching, while Peapod, the other online grocer owned by Ahold Delhaize, shuttered its Midwest division in 2020. 

FreshDirect plans to focus on the tri-state area for the foreseeable future: “[W]e will be expanding in our home markets in the coming years,” the blog noted. During the summer, the e-grocer delivers to the Jersey Shore and the Hamptons, per its website. 

During an earnings call this spring, Ahold Delhaize CEO Frans Muller said FreshDirect is closely collaborating with Stop & Shop to enhance service in the Tri-State area. He said the company will have an update sometime in the second half of this year.