One could argue online-only grocer Peapod is a victim of its own success.
For years, Peapod and New York-area competitor FreshDirect LLC strove largely alone to demonstrate that U.S. consumers would buy groceries online. But now that major food retailers have embraced ecommerce, Peapod is transitioning away from selling groceries itself to becoming a technology provider for the East Coast U.S. supermarket chains that are owned by its corporate parent, Ahold Delhaize of the Netherlands.
As part of that shift, Chicago-based Peapod, which was founded in 1989, announced yesterday that as of Feb. 18 it will stop making grocery deliveries to its core markets: Illinois, Wisconsin and Indiana. It will shut down four Midwestern distribution and food-preparation facilities and lay off some 500 employees.
At the same time, it plans to expand its Chicago ecommerce technology operation, which it renamed in 2018 to Peapod Digital Labs. That unit will provide ecommerce and omnichannel technology for Ahold Delhaize’s East Coast supermarket chains: Stop & Shop, Giant Food, Food Lion, Giant/Martin’s and Hannaford.
Those are now the major contributors to Ahold Delhaize’s $1.10 billion in annual U.S. online sales, the company says. Peapod’s Midwestern sales accounted for only $97 million in revenue last year.
The company says it remains committed to a previously stated goal of increasing U.S. web sales by 30% in 2020.
Ahold Delhaize focuses on its East Coast markets
“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,” said Kevin Holt, CEO of Ahold Delhaize USA, in a statement announcing the end of Midwestern online grocery sales for Peapod.
It also allows Ahold Delhaize to focus its digital investments where it has physical supermarkets. Peapod’s lack of bricks-and-mortar stores in the Midwest made it less appealing to shoppers than the established supermarkets chains that have added omnichannel services, such as buy online for in-store or curbside pickup, says Bill Bishop, chief architect and co-founder of Bricks Meet Clicks, a consulting firm focused on digital technology in the food retailing sector.
“Peapod closing in Chicago signals that consumers are looking for more from online grocery,” Bishop says. “They want to pick up, as well as, have their orders delivered. Without pickup, the company that invented shopping for groceries online just could not compete.”
Holt said Peapod Digital Labs will focus on deploying a new ecommerce platform developed at the Chicago operation for the Ahold Delhaize U.S. supermarket chains.
“Chicago will remain the headquarters for our Peapod Digital Labs team, and we will continue to draw from the valuable pool of digital and ecommerce talent in the market,” said JJ Fleeman, president of Peapod Digital Labs and chief ecommerce officer. “We look forward to honoring and leveraging Peapod’s longstanding legacy of expertise in online grocery and fully focusing our team’s energy and talent on supporting the growth of each of the East Coast brands.”
Ahold Delhaize says it operates more than 2,000 stores in 23 states and is the fourth-largest retail food group in the U.S. Peapod was acquired in 2001 by Royal Ahold N.V., which merged with Delhaize in 2016 to become Ahold Delhaize.
Online grocery competition intensifies
Like its major competitors in food retailing, Ahold Delhaize is putting more emphasis on ecommerce as U.S. consumers increasingly buy groceries online.
Web purchases accounted for 6.3% of U.S. grocery sales in 2019 and will reach 7.0% in 2020, according to Brick Meets Clicks. By contrast, U.S. shoppers purchased only 1.4% of their groceries online in 2010, according to Forrester Research.
As a result, early online grocery retailers like Peapod and FreshDirect now have plenty of company from leading supermarket chains in the Digital Commerce 360 Top 1000 ranking of North America’s leading retailers by web sales.
In fact, The Kroger Co. moved up to No. 17 in the 2019 Top 1000 from No. 86 a year earlier on the strength of 58.0% online sales growth in 2018 and a 5-year compound annual growth rate in ecommerce of 67.2%.
As recently as 2017, Peapod was the leading online grocery retailer, according to the Digital Commerce 360 Top 1000, ranked No. 62 based on its own sales and not counting any web sales by other Ahold Delhaize subsidiaries. That same year, FreshDirect was No. 2 in grocery ecommerce, ranked No. 79 in the Top 1000.
And it’s not just supermarket chains selling groceries online. Walmart Inc., the giant retailer of a broad range of merchandise and the leading U.S. food retailer, is also the online food retail leader.
Walmart, No. 3 in the Top 1000, was cited by 37% of U.S. online grocery shoppers as the place where they last purchased food online in a 2019 survey by Retail Feedback Group. Amazon.com Inc. (No. 1) was second at 29%, other supermarket chains and food stores at 22% and all other e-retailers at 12%.