Ahold Delhaize Shutting Down Peapod's Midwest Operations

Ahold Delhaize USA is pulling the plug on the Midwest operations of Peapod, the food e-commerce site with Chicago roots dating to the last century.

The retailer, which has owned Peapod since the days it battled Webvan, said the move would allow the company to focus its e-commerce efforts on the U.S. East Coast, where it is powering omnichannel capabilities for its supermarket brands.

“This was a difficult decision given Peapod’s rich history in the Midwest,” Kevin Holt, CEO of Ahold Delhaize USA, said in a statement. “We know changes such as these are never easy for consumers and communities. We appreciate the loyalty of associates and customers in the Midwest sales business over the past three decades. We have been and will continue to leverage the learnings from our 30-year legacy of online grocery to enable each of the brands to grow its omnichannel business on the East Coast.” 

Effective Feb. 18, service for customers in Illinois, Indiana and Wisconsin will be discontinued. As a result, a distribution center and food preparation facility in Lake Zurich, Ill., will close, along with distribution facilities in Chicago, Milwaukee, Indianapolis and a pickup point in Palatine, Ill. Approximately 500 associates in the greater Chicago, Indianapolis and Milwaukee markets will be affected. Ahold Delhaize said associates will be eligible to apply for other roles within Ahold Delhaize USA companies and would be offered severance and transition support services. 

Sales to customers in those states accounted for $97 million of Ahold Delhaize’s annual $1.1 billion in online sales.

Ahold Delhaize plans to continue maintaining its Chicago offices of Peapod Digital Labs, its overarching digital firm, which employs 450. That entity, created following the merger of Ahold and Delhaize in 2018, has led an integration of brand, loyalty and e-commerce websites that has allowed for ongoing expansion of pickup, delivery and other omnichannel services from Ahold Delhaize supermarkets.

“Chicago will remain the headquarters for our Peapod Digital Labs team, and we will continue to draw from the valuable pool of digital and e-commerce talent in the market,” said J.J. Fleeman, president of Peapod Digital Labs and chief e-commerce officer of Ahold Delhaize USA. “Through Peapod Digital Labs, we will continue to build upon Peapod’s technology legacy. Peapod began here, and we will remain here, in the heart of Chicago. We look forward to honoring and leveraging Peapod’s long-standing 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.”

Peapod, which Ahold calls America’s first online grocer, was founded by brothers Andrew and Thomas Parkinson in Evanston, Ill., in 1989 and was among the few survivors of the dot-com boom and bust at the turn of the century. For that it can thank Ahold, which swooped in with an acquisition offer in 2000 to save it from a financial crisis that killed off its early peers, such as Webvan, Home Grocer and others.

For much of the following two decades, Peapod operated with few competitors in its Midwest markets, while Ahold used its brand to start e-commerce operations for its Stop & Shop and Giant supermarket brands on the East Coast.

An explosion in online grocery in recent years, including Instacart capabilities, expansion of store pickup efforts from Walmart and Kroger and most recently the advent of on-demand service and free delivery, represented new price and service competition for Peapod, which primarily serviced its shoppers with next-day or scheduled deliveries for a fee. It operated fleets of delivery trucks and off-site warehouses that are increasingly no longer a typical part of grocery e-commerce world.

Ahold Delhaize said it expects no significant impact to reported operating profits or free cash flow related to the shutdown. In addition, it said the announcement would not impact Ahold Delhaize USA’s commitment to its previously stated 30% e-commerce growth in 2020.

“As we’ve previously shared, to continue our strong track record of sales growth and market share gains, we are accelerating our growth and expanding the leadership positions of our businesses in our East Coast markets,” Holt said. “This move will enable us to fully focus on markets where we have strong store density, leading market share and a long-standing heritage of customer loyalty.”