Peapod’s worry: Amazon and Whole Foods in grocery delivery – Consumer News

on Jun19

19 June 2017 | 10:30 am

Three years ago, Peapod co-founder Thomas Parkinson confessed in an interview that his No. 1 worry was that Amazon would get into grocery deliveries in a big way, noting, “It’s going to be a good fight.” Now that fight is officially on, given Amazon’s $13.7 billion purchase of Whole Foods last week.

Peapod, the Skokie-based grocery delivery pioneer that began in 1989, is today owned by Ahold Delhaize, a Dutch-Belgian retail conglomerate. The delivery service operates in 24 markets in 13 states and has delivered more than 40 million orders, according to its site.

Ahold Delhaize, which last year reported annual revenue of about $22 billion, doesn’t break out Peapod’s financials. But Don Davis, editor-in-chief of trade publication Internet Retailer, estimates Peapod’s sales were $864.3 million in 2016. That places it atop all supermarket chains for online revenue, just ahead of Fresh Direct, New York’s dominant delivery service, and Kroger.

One caveat? Internet Retailer doesn’t break out Amazon’s food sales.

Amazon has been poking around food delivery since 2007, when it debuted Amazon Fresh, which offers produce and pantry staples. Though the service got off to a slow start, Amazon never dropped the idea. It spent the ensuing years building out a distribution network, including a constellation of warehouses in the Chicago area, that enable same-day and next-day delivery. Now that it’s grabbed Whole Foods in its biggest-ever acquisition, Amazon is clearly ready to hit the gas on groceries, the largest consumer category yet to be fully disrupted by technology. And that’s enough to make the whole industry shudder.

Peapod declined to make an executive available for an interview. “It is a very dynamic time in the grocery industry and this is another sign that retailers are responding to the various ways consumers shop for food—the most important and consistent purchase decision they make each week,” the company said in an emailed statement.

But in 2014, co-founder and chief technology officer Thomas Parkinson spoke to Crain’s candidly about the threat posed by the online behemoth: “Our biggest fear is (Amazon’s) not caring about not making money,” he said at the time. “They’ve proven time and time again that they’re willing to spend a lot to gain customers. It’s going to be a good fight. The highlight for me is how fast we’re growing and the investment by Ahold. They know we have to build out now to get ahead.”

Peapod has grown in the intervening years, expanding in metropolitan New York. Last year, Ahold Delhaize said its online unit’s growth had fallen from to high single digits from double digits due to operational issues around getting Peapod’s New York-area warehouse up and running—not due to a lack of demand.

Peapod also has worked to increase its technology offerings, creating an in-house tech incubator called Peapod Propulsion Labs. That group came up with ItemMaster, a company that makes online photos of food products look better. ItemMaster, which counts Walmart.com as a client, spun off from Peapod last year.

The online grocer also is planning to relocate its offices from Skokie to downtown, joining other companies who move from the suburbs in order to attract high-caliber talent. The move, will take place by the end of the year, Peapod has said.

AMAZON THE EXPERIMENTER

This April, Peapod announced it was partnering with Baltimore-based DinnerTime, a company that lets users create customized meal plans and online shopping lists at various grocers. DinnerTime customers can now select Peapod as their grocer; their items can be delivered or picked up at one of Peapod’s locations, which include grocery stores owned by Ahold Delhaize in the U.S., including Stop & Shop and Giant.

Peapod’s effort to move beyond pure groceries is an attempt to keep up with Amazon, which has experimented with all kinds of food delivery.

“Historically, grocery has thought about e-commerce as, ‘We’re just going to make the products we have in the store available online,’ ” says Jim Hertel, managing partner with Willard Bishop, a grocery consultancy in suburban Long Grove. By contrast, “Amazon has been very experimental with the delivery side of the business, trying everything from ingredients for meals to meal kits to prepared foods.”

Hertel says traditional bricks-and-mortar supermarkets may have more to fear than Peapod, because the service has quietly spent decades tackling the tricky logistics associated with delivering fresh food and has Ahold Delhize’s massive resources behind it. Many bricks-and-mortar grocers, meanwhile, are hopelessly behind. Hertel points to the stock of Cincinnati-based Kroger, “as well run a traditional bricks-and-mortar grocer as there is,” which tumbled 9.2 percent on June 16 after Amazon’s purchase was announced.

Indeed, online grocery has made huge strides in the past two years: By the end of this year, 57 percent of consumers will have tried online grocery delivery, up from just 9 percent in 2015, according to Nielsen. Moreover, an estimated 20 percent of all grocery spending—a total of around $100 billion—is expected to come from online shoppers by 2025, according to Nielsen and the Food Marketing Institute. “A lot of people are saying, ‘I’ve tried it and seen a glimpse of the future,’ ” says Hertel.

But the full picture of the grocery industry’s future—and Peapod’s place in it—remain to be seen.



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