Jennifer Kunkel

COMPANY NAME/WEBSITE/INDUSTRY
FreshDirect / http://www.freshdirect.com/site_access/site_access.jsp / grocery industry
BACKGROUND/HISTORY
FreshDirect was created in July 2001 by cofounder and former chief executive officer Joseph Fedele, who was able to bring plenty of experience in New York City’s food industry to the company. Vice Chairman and Chief Financial Officer Jason Ackerman was an investment banker with Donaldson Lufkin & Jenrette, where he specialized in supermarket mergers and acquisitions and gained him exposure into the grocery industry. Fedele and Ackerman had decided to open their own chain of fresh-food stores, but decided to pursue an option that allowed them to use online shopping and central distribution to deliver their products to consumers. The idea behind the company was to take products that you typically get from a grocery store and deliver them to the doors of their customers. After several changes to CEO, Jason Ackerman is currently holding the position. (Dess, c125)
SWOT ANALYSIS
Strengths
* Financial backing from several private sources, with a small contribution coming from the State of New York. * Outstanding customer service. * Door to door delivery. * Warehouses have multiple temperature zones to ensure freshness of different types of food. * Refrigerated trucks.
Weaknesses
* Only located within a certain mile radius of Manhattan, Queens, Brooklyn, Nassau County, Riverdale, Westchester, select areas of Staten Island, New Jersey, and parts of Connecticut. * Continuously changing management (CEO). * Customers can only have their orders delivered during a prescheduled, two-hour window.
Opportunities
* Can expand their business outside of the current areas. * Can expand to include non-perishable products. * Can open a change of supermarkets that coincide with home delivery. * Can offer the option to use a previous order as a basis for a new order, essentially creating a “reorder” option.
Threats
* Environmental concerns with the use of cardboard boxes and exhaust from delivery trucks. * Whole-foods threatened sales in Manhattan, while Trader Joe’s opened a chain in FreshDirect territory. * The re-opening of YourGrocer’s, along with its new benefits to the New York metropolitan area. * In 2007 NYC government proposed congestion charges for traffic entering into Manhattan.
ANALYSIS VIA PORTER’S FIVE FORCES MODEL * The threat of new entrants – large capital, food and grocery industry experience, access to suppliers, understanding technology. * The bargaining power of buyers – access to internet for virtually any and all shopping, price analysis. * The bargaining power of suppliers – good relationship with suppliers and local stores, fresh and dry products were ordered from individual growers and producers allowing them to stay local. * The threat of substitute products and services – grocery stores, other online sites, farmers markets, etc. are all other sources for customers to purchase goods. * The intensity of rivalry among competitors in an industry – YourGrocer’s committed to savings in bulk, coverage area is limited.
STRATEGY USED Competitive advantage occurs when a company sustains profits that exceed the average for its industry. (Competitive) FreshDirect achieved competitive advantage by offering low prices and high quality products. They put their focus on perishable products, such as meat, sea food, fresh fruits, and dairy products, while delivering the items directly to the customer’s door. By offering high quality products, along with competitive pricing, FreshDirect is able to ensure they keep their customer base and maintain their outstanding reputation. FreshDirect also gained competitive advantage by following Porters generic strategies; cost leadership, differentiation, and focus. (Dess, 163) By having properly trained staff, an innovative website, and focus on the customer’s needs within a certain demographic, the company should continue to thrive.
THE ISSUES AND CHALLENGES FACING THIS COMPANY The biggest challenge for a company like this is the competition. Amazon.com entered into the online grocery business which poses as a huge threat for FreshDirect because Amazon already has a loyal customer base. They also offer non-perishable items, such as canned goods, which is an idea that FreshDirect has yet to explore. They also tend to have an abundance of traffic infractions while trying to deliver within their limited window of time. (Dess, c138)
COURSE OF ACTION RECOMMENDED If I was in a position within this company, there are two things that I would recommend changing. First, I would recommend that we start offering non-perishable items alongside the perishable that we currently offer. As it stands now, customers enjoy getting the perishable items delivered to their door, but they now have to introduce a second entity into their grocery shopping to get the non-perishable items. This prompts them to shop around, either in grocery stores or with other online entities. Second, I would recommend expanding their customer base. We could build new facilities, at various locations, that would allow us to increase the delivery area.
OPINION
I think that this case study was a great way for us to learn about competitive advantage, how to create a SWOT analysis, Porter’s five forces, and Porter’s generic strategies. I think that it is very important that we learned how to take a case study and analyze it, picking apart the positives and the negatives, and then relating them to each of the concepts we have been learning. I also learned that it is important for companies to be open to changes as technology and demand bring new ideas every day.

References

Dess, G., Lumpkin, G. & Eisner, A. (2012). Strategic Management (6e). Boston: McGraw-Hill Irwin.
Competitive Advantage. Retrieved March 22, 2013 from
http://www.quickmba.com/strategy/competitive-advantage.