FreshDirect is an online grocery launched in 2001 that offers shopping and delivery services to around 300 zip codes in the tri state area of New York (www.freshdirect.com).
The current CEO of FreshDirect is Mr. Jason Ackerman, who is also a cofounder of the firm, whilst the chairman is Jim Manzi. FreshDirect serves over 600,000 customers, and in 2010 it claimed revenues of more than $250 million, representing an increase of $20 million from the previous year (Bloomberg BusinessWeek, 2012).
FreshDirect has had many ups and downs. It had initially set up a goal of getting a hold of 5% of the grocery market in New York, but they were not able to do this till 2011, only after having expanded to other states and the greater part of New York. In 2007, workers at company wanted to unionize due to low wages and an immigration audit later on in the year led to mass resignations from workers, and the workforce was reduced to almost half. However, in the midst of all these challenges FreshDirect was able to develop their 4 minute meal line which greatly boosted sales (Chatterjee & Laseter, 2004).
SWOT ANALYSIS
Internal Strengths Internal Weaknesses Creation of value through marketing and sales approaches by Area of business coverage is limited. To reduce risk diversification advertising on billboards and commercials. is needed. Product prices are relatively lower compared to their competitors, The organization mainly relies on online food grocery, thus tapping creating incentive for customers to buy. into a new industry can be really hard. Expert employees who are efficient meaning that products are delivered and produced efficiently. External Opportunities External Threats New York City demographics are becoming over-populated. Global recession means that exchange rates are high, increasing Older generations cannot get out of the house a lot. Thus demand for business costs. the industry increases as the population ages. Increase in interest rates lower consumer spending decreasing sales. Socio-cultural changes mean that people have less time to shop and cook. Technological factors such as increases internet access means that FreshDirect talks to customers easily.
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ANALYSIS VIA PORTER’S FIVE FORCES MODEL
Porter’s five forces model was designed to analyze the competition in a business environment, and FreshDirect is no different since it is affected mostly by these forces as well (Dess, Lumpkin & Eisner, 2007).
The threat of new entrants in the online grocery sector is quite low. This is because the costs of starting up and making impact in the market are quite high. Nonetheless, competition is present from existing online grocery stores and supermarkets. SUPPLIER POWER Differentiation of inputs BARRIERS THREAT OF TO ENTRY ( SUBSTITUTES
Proprietary learning curve ( Rivalry ( -Buyer inclination to Capital requirements produce Brand identity ( -Price-performance trade-off of substitutes BUYER POWER RIVALRY DEGREE Buyer information -Industry growth Brand identity -Product differences Product differentiation -Brand identity
STRATEGY USED
Porter identified a number of strategies that could be used to create competitive advantage for any business, and included focus, overall cost leadership, and differentiation (Dess et al, 2007).
FreshDirect seems to have incorporated these strategies for its use since the company has gotten its niche and competitive advantage in the market. FreshDirect’s make to order outlook is an example of the advantage it has by differentiation, since it produces inventory in time to sell (Chatterjee & Laseter, 2004).
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Additionally, FreshDirect uses an operational strategy which enables customers to choose the cut of meat on offer. This is a unique service and offers FreshDirect another edge over competitors. A differentiation strategy used by FreshDirect is that it has set delivery times that are not only friendly to customers, but friendly to the company. THE ISSUES AND CHALLENGES FACING THIS COMPANY
FreshDirect is growing with each passing day, and more people are latching on to the idea of an online grocery store that delivers at home. Therefore its competitive advantage can be sustained, but only if new innovations are offered to customers. Lower product prices can also be sustained, and this too will hinge on whether costs incurred by the company are kept low. FreshDirect is currently at the consolidation stage, since after having problems in 2007, it has been trying to strengthen its niche, and it is this that led to various innovations and increased profit margins. The fact that the company is looking to expand means that it is still growing, and it will most likely do well. FreshDirect encourages innovation and prides itself in high quality work (Chatterjee & Laseter, 2004).
These are desirable attributes and should not be changed. One major problem that FreshDirect has had to contend with is accusations that it is polluting the environment. This is from the many trucks that it has and the parking boxes that is uses which litter any area where foods are delivered to, and also accusations from neighborhoods that advertising used by the company is too much and it changes the face of the neighborhood.
COURSE OF ACTION RECOMMENDED
To maintain its hold in the online grocery industry, FreshDirect needs to first carry out an analysis to determine changing forces in the market. Reports from the analysis will then be used to formulate new market strategies. Thus, if competitors or a new entrant adopts strategies similar to FreshDirect, then the company will implement new plans that were crafted from the results gotten after carrying out the analysis. This will ensure that the company’s differentiation mark remains intact. OPINION
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FreshDirect is a company that seems to have started off well, but then had some teething problems. It was able to stabilize, and is now experiencing good growth and profits. Good management and sound operational strategies seems to have worked in its favor. This is therefore a good case study that seems to have worked out well. Some of the lessons learnt include: Good business strategies need to be implemented all the time. All businesses have ups and downs, it is the handling that ensures success and Innovation is crucial to surviving in any industry.
References
Bloomberg BusinessWeek (2012).
FreshDirect, LLC’s Groceries Arrive at Philadelphia’s Door
Step. Retrieved from http://investing.businessweek.com
Chatterjee, D., and T. Laseter (2004).
“Fresh Direct: Expansion Strategy.” Darden Business Publishing, OM-1115
Dess, G., Lumpkin, G. & Eisner, A. (2012).
Strategic Management (6e).
Boston: McGraw-Hill
Irwin.
http://www.freshdirect.com
