Peapod, the grocery delivery pioneer, is ceasing operations in the Midwest, a move that will mean the loss of 500 jobs.
Customers in Illinois, Wisconsin and Indiana won't be able to place online grocery delivery orders through Peapod starting Feb. 18, its parent, grocery store giant Ahold Delhaize, announced Tuesday. About 50,000 people use Peapod in the Midwest, placing 10,500 orders weekly.
Chicago-based Peapod plans to close a distribution center and food preparation facility in Lake Zurich, Ill., a pick-up point in Palatine, Ill., and distribution facilities in Chicago, Milwaukee and Indianapolis _ affecting 400 employees. Another 30 employees will be cut at corporate headquarters in the West Loop, and about 100 drivers will lose their jobs.
Chicago will remain the headquarters for Peapod Digital Labs, which runs the e-commerce technology for Ahold Delhaize's U.S. grocery brands. Peapod Digital Labs employs about 450 people, half of them in Chicago, and plans to hire 100 more people this year.
Peapod is exiting the Midwest as grocery delivery heats up. The value of the online grocery market more than doubled from $12 billion in 2016 to $26 billion in 2018, and some projections have it reaching $100 billion by 2025.
Peapod will continue to serve customers on the East Coast, where Ahold Delhaize, the Dutch parent of Food Lion, Stop and Shop and Giant, is the region's largest grocery retailer. The decision to cut service in the Midwest service will allow the company to focus on an omni-channel strategy that offers in-store, delivery and pick-up options.
"Customers really want groceries to be available for them whichever way they choose to shop," said JJ Fleeman, chief eCommerce officer and president of Peapod Digital Labs.
Peapod's Midwest operation posed challenges because it was online only, so it didn't have a network of stores to connect to the supply chain and it was more difficult to gain new customers who want to know the grocery brand where their fresh food is coming from, said Selma Postma, president of Peapod.
"This was a very difficult decision given our rich history in Chicago," Postma said. "We have a lot of loyal customers, we have a lot of loyal employees."
Peapod's Midwest operations accounted for about $97 million of Ahold Delhaize's $1.1 billion online revenue in the U.S.
Peapod, founded in Evanston, Ill., in 1989, was purchased by Ahold in 2000. Headquartered in Skokie, Ill., for most of its history, it moved to Chicago in 2018.
The company has been trying to survive an escalating war with Instacart and Amazon grocery delivery services, whose on-demand delivery propositions have changed customer expectations.
"It's really a speed issue," said retail consultant Neil Stern with Chicago-based McMillanDoolittle. "Everything else about Peapod's operation in terms of quality was superior, it just required a longer lead time to make it happen."
Peapod, which employed its drivers and owned its trucks, also has a more expensive business model than some its e-commerce competitors that rely on independent contractors who haul groceries in their own cars, Stern said.
Stern said the news of Peapod's closure in its hometown was "a bit shocking," though its sales suggest struggles in the Midwest. When he consulted for Peapod a decade ago, Midwest sales were closer to $150 million, he said.
"Once the expectation is set that you can get deliveries to your house in an hour, why would you settle for anything other than that?" Stern said.
Affected employees will be offered severance and transition support services, the company said.
