FreshDirect launched its grocery delivery service in New York in September of 2002. The food delivery service started out with an initial investment of more than $100 million and 200 employees. FreshDirect has a different product blend and value proposition than most online and brick-and-mortar grocers, with about 83% of its foods being perishables, compared to 20 percent in most. FreshDirect emphasises on the freshness and the quality of its products, since it buys directly from the suppliers, farms and Sherman among others.
Other services like storage, order processing, and food preparation take place in its 300,000 square foot, twelve temperature zone warehouses in Long Island City, New York. This case study looks at the business opportunity explored by the founders of FreshDirect. We shall begin by exploring the businesses behind FreshDirect, examine the challenges that the company has encountered since its founding, as well as the solutions to these challenges.
We shall also look into the effect of the solutions and strategies in place to overcome the challenges put in by FreshDirect management, and their effects, both in the short-term and the long-term. In concluding this paper, we shall put identify some problems that FreshDirect is likely to encounter in the future, and offer some recommendations on how to overcome them.
There has been an increasing interest by consumers to point and click their way through a large number of aspects of daily life. This has in turn fuelled the Internet economy to develop services and sell products online, in many areas including those dominated by traditional businesses including pharmacies and grocery stores.
Online grocery retailers are referred to as e-grocers, like FreshDirect. The value proposition of FreshDirect, like other e-grocers is to become the single-source solution for the busy consumers of this Internet age. E-grocers provide information as well as products and services. Fresh direct makes use of customized weekly shopping lists and lists of frequently ordered products as well as personalized shopping aisles to guide their clients.
There are the obvious advantages of on-line businesses and especially e-grocers, such as: elimination of the high costs associated with multiple retail locations, including rent, parking, and high property taxes; better management of inventory due to centralization of activities, which reduces inventory holding costs and increases inventory turnover rates, leading to less spoilage of products and shorter lead times from the producer to the consumer; and collecting of detailed information about their customers’ buying habits and preferences, which can then be used for targeted marketing and personalized promotions.
Online grocery shopping is quite appealing, though not everyone has embraced it as a replacement to regular trips to the supermarket. One of the problems limiting the adoption of e-grocery is the fact that customers have to plan and think about the delivery schedule.
Most consumers are used to going to the grocery store as part of a long list of activities that include picking up or dropping the dry cleaning, or renting a movie. Besides this, online consumers of grocery have other concerns, which include: shipping costs; credit card security; the need or want for immediate delivery of products; and the social aspects of the shopping experience.
The growth of e-grocers can be attributed to their appeal to customers due to their better prices, larger selection of produce, convenience and time saving. Home delivery of items purchased online is appealing to those for whom going out to shop is difficult for various reasons, such as physical disability, the need to care for small children, the lack of adequate or convenient transportation, and/or a busy lifestyle. The purchase of groceries online prevents the consumers from having to drive to and from the shopping centres.
There are some people who would rather buy their groceries after smelling the vegetables and squeezing the fruit, which may limit the growth of FreshDirect from acquiring clients who are not already e-grocer shoppers, to stealing or wooing clients from their competition
Challenges encountered and the solutions
FreshDirect makes almost 10,000 deliveries everyday in New York City, where the traffic is terrible. The maintenance of a high quality of service through on-time delivery is critical for FreshDirect. To avoid customer dissatisfaction from late order delivery, FreshDirect applied a real-time solution to access delivery performance, whereby delivery rate data was recalculated every five minutes and applied to each route to predict which orders were most likely to be late.
The system uses customer delivery addresses to identify customers at risk of having a late delivery, which are plotted on a street level map of New York City using Centigon Solutions’ GMaps Plugin. This allows the operation managers to pinpoint risk geographically and prioritize where to send auxiliary delivery units each hour. FreshDirect can now serve more customers with the same delivery run and meet its commitment to reducing its carbon footprint, while improving it’s bottom-line.
Rapid growth of e-commerce functionalities
The rapid growth of applications and new e-commerce functionalities is a continuous challenge to the team at FreshDirect. An example of such a situation is when FreshDirect users experienced accumulative login delays, whereby the more times an individual consumer ordered, the longer it took him or her to log on, taking up to 60 seconds at particular times.
This aspect influences whether a customer will continue and return for repeat business. This problem was tied to FreshDirect’s database, and they therefore, consulted with Pythian to fix any problems with regard to its database.
Pythian fixed the problem by rewriting the user authentication process, which included application and database changes, as well as database design elements. The application and database changes resulted in improvements such as reduced log-in time to 0.5 seconds. Throughout the years, Pythian has applied its breadth of knowledge to solve issues that fall within and outside of the scope of database administration.
Network and phone system
Fresh Direct is a leading importer and distributor of more than 400 high-quality produce items from 25 countries around the globe. The firm serves a diversified base of customers across Canada including chain stores, food service distributors, wholesalers, and independent grocers.
To power this global business, Fresh Direct relies on rapid communication with suppliers, business partners, and customers. Produce is a perishable product, and market conditions can change in an instant, so speed is critical to success.
Raid growth of the company needed a better network and phone system to keep up with the fast paced business operations. The current system was cumbersome to manage and update. The company had no wireless networking capabilities, and its call management features were also limited, making it difficult to reach a highly mobile workforce.
To provide its employees with the direct and immediate communications that the business was in need of, Fresh Direct replaced its phone system with the Cisco Unified Communications System to support all voice, data, and wireless communications on one secure network. Its intelligent call-handling features make communication fast and simple, improving the company’s efficiency and productivity.
The FreshDirect website had many products, which required an analysis program to identify the product categories, site architecture, marketing campaigns and product promotions that were working best, not working at all, or could be producing greater ROI. T
o solve this problem, FreshDirect consulted NetTracker from Unica to provide comprehensive web site traffic analysis and online behaviour analysis. NetTracker made short-term and long-term sense for FreshDirect by meeting their immediate need for detailed and customizable click stream analysis reporting.
This was advantageous in that FreshDirect could send More Targeted Email Campaigns with Greater ROI. These statistics are then used to decide which campaigns will be recurring, changed or terminated. NetTracker also provided FreshDirect with an opportunity to exercise Intelligent Merchandising, promotions and Cross-Selling Campaigns. One of the ways that FreshDirect promotes products is to suggest complimentary items when a customer adds something to their cart.
NetTracker has also been useful in providing Shopping Behaviour Insight, by monitoring all behaviour specifically related to check-outs: the most frequent check-out time, the most frequent shopping time, the duration of shopping visits, the average time to complete a purchase, and the day (or dates following campaigns) on which purchases are most frequently completed. In addition to this, FreshDirect has placed various geo-coded advertisements on AOL.
FreshDirect has overcome most of the challenges that have been thrown its way, mainly through good partnerships with companies like Cisco, NetTracker and Pythian among others. In their expansion process, for instance, FreshDirect could make use of Cisco to come up with unified communications that will convert voicemails to email attachments, for easier message management, as well as any other communication needs.
In addition to this, NetTracker still has an important role to play in developing an even more personalized experience for customers on the FreshDirect site by learning about behaviour over time based on patterns, such as purchase of items after one, or two or three visits.
Eisner, Alan B. Case 40: FreshDirect . A Basis For Class Discussion, New York: Pace University, 2009.
Alan, B. Eisner, Case 40: FreshDirect,. A Basis For Class Discussion, New York: Pace University, 2009