Ahold Delhaize USA announced this week that it is shutting down the Midwest division of its Peapod online grocery business. Starting Feb 18, customers in Illinois, Wisconsin and Indiana will no longer be able to place online grocery orders through Peapod.
As part of this move, Ahold said it will close distribution and food preparation facilities across Illinois which will cause the loss of 500 jobs. According to Milwaukee News and Events, 50,000 people use Peapod in the Midwest, placing 10,500 orders weekly. Ahold said that Peapod’s Midwest operation accounted for $97 million of the company’s overall $1.1 billion in revenue.
Selma Postma, President of Peapod, told Milwaukee News and Events that the issue for Peapod in the Midwest was that it was online only, so there was no network of physical stores for its supply chain or for customers to visit and get to know the brand.
Ahold’s Midwest contraction comes at a time when grocery retailers are aggressively expanding their online, delivery and pickup operations. Kroger is building out automated fulfillment warehouses. Alberstons is placing robotic micro-fulfillment centers in the backs of its stores. Walmart is rolling out its Delivery Unlimited service nationwide. And Amazon waived its grocery delivery fee for its Prime members (oh, and it’s building out its own chain of physical supermarkets).
Ahold said it closing down Peapod’s Midwest operations to focus on the East Coast, where it is actually trying out different e-commerce-forward store formats. Last year, Ahold subsidiary Giant Foods opened up a physical hub powered by Peapod that services delivery and pickup of e-commerce orders.
There’s a saying that vertical cuts are better than horizontal ones. So while we never applaud people losing their jobs, the decision to lop off the Midwest to strengthen Ahold’s position on the East Coast makes sense. Now Ahold will just need to keep innovating and pushing to keep up with the grocery delivery competition.