COMPANY NAME/WEBSITE/INDUSTRY
Fresh Direct / https://www.freshdirect.com/ Retail Grocery Industry
BACKGROUND/HISTORY
Based out of Long Island City, Queens, FreshDirect was launched in July 2001, by Joseph Fedele and Jason Ackerman. It offers online grocery shopping and delivery service to over 300 zip codes in the Manhattan, Queens, Brooklyn, and surrounding areas. At the time of launch, there had been numerous other online grocery ventures that had ultimately met their demise. What made Fresh Direct unique was that it could offer grocery shoppers: “higher quality at lower prices.” It was able to do so because it had no retail location, which meant there was no rent to pay for retail space. In order to provide its customers with highest quality of food, FreshDirect created a state-of-the-art production center that is staffed with expert personnel. Since its existence, FreshDirect has changed CEO’s seven times, with Jason Ackerman, one of the co-founders, as its current CEO. FreshDirect currently is a privately owned company is not mandated to share any of its financials to the public. However, in an interview by Ken Bruno of Forbes with former CEO Richard Braddock, Bruno stated, “the company increased revenue in 2009 by approximately $20 million up to an estimated $250 million and in 2010 has grown its customer base in the range of 20% to 25%” (June 2010).
SWOT ANALYSIS
STRENGTHS
Large concentration of population
Does not pay rent for retail facilities
Able to deliver to residence and business
Employees are experts and are carefully chosen
Excellent customer service
WEAKNESSES
Too many CEOs over short period of time
Customers are not able to feel, see, or smell food prior to purchasing
Currently delivers to only New York and surrounding areas
OPPORTUNITIES
Expanding to other states outside New York
THREATS
Other online grocery stores in the area
Rising gas prices
Substitution of Product
ANALYSIS VIA PORTER’S FIVE FORCES MODEL
THREAT OF NEW ENTRANTS
New entrants would require an understanding of how to operate an online store successfully. Being able to establish relationships with local suppliers and distributors is a must. Without them, the business will fail. The industry could be saturated with already well-established business and could be discouraging. Also, big capital from investors is also required.
BARGAINING POWER OF BUYERS Since it is an online store, customers may be enticed to do business with another company that offers the same service as FreshDirect at a cheaper price. Also, being able to compare prices gives the buyer the option to go elsewhere and could force FreshDirect to lower its prices while providing the same services as before. Buyers would be able to use this to pit competitors against each other and are able to switch between FreshDirect and its competition easily.
BARGAINING POWER OF SUPPLIERS FreshDirect is known for offering the freshest products and are known by the brands it offers. The supplier could easily offer the same brand to a local store and could just get their product there. However, FreshDirect’s customers seem to be loyal and FreshDirect also has excellent relationships established with its suppliers. They don’t see them being a possible threat.
THREAT OF SUBSTITUTE Local stores could offer similar products that FreshDirect has to offer at a much lower price. In an effort to save money, suppliers could start offering FreshDirect products that may be similar to what they sell, but are not of the same quality.
COMPETITIVE RIVALRY Peapod, NetGrocer, and YourGrocer offer any real competitive rivalry to FreshDirect. Of the three, only NetGrocer offers to deliver to all 48 states within the continental US. The other two competitors deliver not only in the New York area but also to areas in surrounding states. FreshDirect needs to expand beyond its current market base in order to stay competitive.
STRATEGY USED When FreshDirect first started, they initially just serviced within the New York City area. Under CEO Richard Braddock, FreshDirect continued to expand its services out into the suburbs of New York City. The two main target markets are the singles and families markets. Some orders could get up to $120, but with expanding their boundaries for services, family orders could go for $150 and more. Online shopping really is a convenient way for families to shop if they have busy schedules. The only downside is the more expensive delivering fee to the suburbs. As far as competition, they didn’t plan to change any of their strategy. In Bruno’s interview of Braddock, Braddock states, “when we think about customer proposition and we think of our financial model, it’s a dedicated business,” (Bruno, June 2010). Meaning that they are dedicated to their customers as much as their customers are dedicated to them. Customers know what kind of service they are getting for what they paid, and thus far have been very pleased.
THE ISSUES AND CHALLENGES FACING THE COMPANY Amazon has entered the dry-goods grocery delivery business and because of their loyal customer base and outstanding customer service, they are a big threat to FreshDirect. One reason being that Amazon is able to deliver just about anywhere. FreshDirect on the other hand, was restricted only to the New York Area. Amazon concentrated on nonperishable foods and did not have to worry about meeting certain delivery times and climate sensitive items, unlike FreshDirect and Peapod. Just like with any other online retail, technical glitches and website outages greatly affect their business. Another problem is the fact that in order to meet certain delivery windows for customer, sometimes the best parking was not available. Because of this, the company received “hundreds of thousands of dollars in parking tickets,” (Dess, 2012). Also adding to their delivery expenses, a congestion charge for traffic entering Manhattan was proposed in 2007 as well as the ever increasing prices of fuel. Environmental concerns began to appear due to the number of cardboard boxes FreshDirect was using. For each order, perishable items had a box, produce came in a separate box, and even a tube of toothpaste had its separate box. The boxes used by FreshDirect were 100% postconsumer recycled paper but its reusability was very limited. Along with the concern of cardboard boxes, the concern of exhaust fumes to the urban atmosphere that FreshDirect trucks contributed to the environment. Trucks double parking contributed to the increasing congestion problem in New York, and also a growing concern that FreshDirect could be undercutting local business such as farmers markets, small businesses, and local grocery stores.
COURSE OF ACTION RECOMMENDED In order for FreshDirect to maintain a competitive advantage, it needs to expand beyond its current boundaries. The people of New York are well aware of the kind of products and service it brings to its customers and there is no reason why it could not do the same elsewhere. I would advise to test out a certain area to and conduct surveys to get an idea on how well customers respond to FreshDirect’s business strategy. The growing concern local residents have about FreshDirect could be all but extinguished if FreshDirect would have a physical retail location. This would help lessen the amount of exhaust fumes the public believes FreshDirect is contributing to the environment, the large number of boxes used by FreshDirect, and would drastically cut down on the number of parking violations, saving the company hundreds of thousands of dollars. The expense of rent would now cut into their profits, but the space needed does not have to be big. The freshest products would still be offered by the same experts and customer service would still be as great. The only difference now is that customers will be able to pick up their orders instead of having them delivered during a certain timeframe.

OPINION FreshDirect has been able to cater to their customers while providing the best and freshest products and providing outstanding customer service. They make grocery shopping online convenient to customers by delivering to their place of business and/or their home of residence. One problem is that they would only deliver to certain zip codes within New York and left many potential customers wanting their service in their area. To be able to stay competitive and seek potential customers, they must expand their delivery boundaries. The growing competition of well-established online retailers, such as Amazon, venturing into the grocery business demands that they do so. Having a physical location for customers to purchase their products would help them expand as well. Some customers want to be able to pick and choose what produce they want and not have someone else do it for them. This will only enhance their reputation of providing the best quality food.

REFERENCES Bruno, K. (June 2010), Inside FreshDirect’s Expansion, Forbes, Retrieved from: http://www.forbes.com/2010/06/29/freshdirect-online-grocery-braddock-cmo-network-grocery.html Dess, G., Lumpkin, G. & Eisner, A. (2012), Strategic Management (6e), Boston: McGraw-Hill Irwin. https://www.freshdirect.com/category.jsp?catId=about_ourteam_ldrship