Case Study Report
FreshDirect
www.freshdirect.com
Food Delivery
BACKGROUND/HISTORY
FreshDirect is a grocery shopping and delivery service operating out of their headquarters in Long Island City, Queens. They offer delivery services to over 300 zip codes in Manhattan, Brooklyn, New Jersey, and many parts of Connecticut. FreshDirect also has a pickup service at its Long Island location. The company was launched by Joseph Fedele and Jason Ackerman in 2001. Their goal was to have the best delivery grocery service and promised their customers “higher quality at lower prices”, which is a high standard to achieve in such a competitive market. Fedele and Ackerman first had the idea of starting a large chain of conventional fresh-food stores, but they realized maintaining the degree of quality they desired would be difficult with a large business at first. They decided to have a business that incorporated online shopping with distribution from a central location. Fedele and Ackerman wanted to start slow, use off-the-shelf software and an automated delivery system, and pay attention to details such as forming relationships with key suppliers and micromanaging quality control. FreshDirect got much of its $100 million investment from private sources, with small contributions coming from the State of New York. By locating FreshDirect’s distribution center within the state border and promising to create at least 300 jobs, FreshDirect was eligible for a $500,000 training grant from the Empire State Development Jobs Now Program (Dess, 2012, p. C125).

FreshDirect started out relatively slow and had hoped to capture about 5% of the market in their operating area. They wanted to start citywide in 2002 but to maintain the desired quality service and product quality, they chose to slowly expand instead of immediately going full force in an area that would cause them to forefeet some quality service. To advertise their business, FreshDirect took a moderate approach to advertisement by relying on billboards, public relations, and word of mouth. FreshDirect also employed the use of celebrity film directors and actors to help build their customer base. Eventually, as their business grew they switched to a testimonial based marketing strategy.
SWOT ANALYSIS
Strengths
Delivers high quality product at low prices.
The company is a top competitor in its market.
FreshDirect has a strong desire for quality service and control
Weaknesses
Lack of forethought to recycle shipping boxes.
High rate of change over from CEO.
No serious financial liabilities.
Opportunities
Yes, there is more of a desire to have online shipping.
There is a huge market for their business.
The advancement in quality control and product testing gives them an advantage. Threats
They have local competitors that are copying their business model.
Public perception is a constant battle.
ANALYSIS VIA PORTER’S FIVE FORCES MODEL
Threat of Entrants:
The entry barrier for online grocery stores is low because the set up cost of making website and to conduct business online is relatively cheap. If a company wants to compete with FreshDirect, it needs a large investment.
Bargaining power of buyers
The Bargaining power of buyer is high because online orders are not the only source of buying grocery. It can be bought in almost every block of the city, whether a big chain or a small store.
For an online grocery retailer, sellers means the companies which provides trucks on lease for delivery purposes, the companies that may be providing delivery services or may be providing cold store rental services and IT companies who provide internet services for managing websites.
STRATEGY USED
The company uses many quality control features that ensure the products are kept at optimum temperature and to ensure the freshest products. FreshDirect does not have retail space like major grocery stores; instead they have one central location which reduces costs and allows more funding