How did FreshDirect choose to compete, and what competitive challenges does FreshDirect face now?

First launched in July 2001, FreshDirect was a New York City based online grocery store with a state of the art production center, top-notch personnel, leading edge manufacturing software, the highest standard of cleanliness, health & safety, and an informative and user-friendly website. System efficiencies included: a cost-effective operational design; no middleman; a central production and distribution location; well-designed order and delivery protocols; and a policy of no slotting allowances. These system characteristics enabled FreshDirect to maintain a high product quality while keeping product prices low, therefore fulfilling its promise to grocery shoppers of “higher quality at lower prices.”

The ideal FreshDirect customer was described by Jason Ackerman, one of the founders, as someone who buys their bulk staples from a warehouse like Costco on a monthly basis, and buys everything else from FreshDirect on a weekly basis. The website offered a broad selection of products along with information about the food. Products could be compared on taste, price, usage and nutritional information. Custom cuts and seasonings of meat could be ordered. Delivery options included direct to the home in selected zip codes throughout Manhattan and as far away as Westchester, Connecticut, New Jersey, the Hamptons on Long Island (in the summer only), and in the Philadelphia and Delaware area.

Early on the online segment of the grocery industry was a small percentage of the industry total. Despite a large potential target audience, the on-line segment had been slow to catch on. Total online grocery sales nationwide had been expected to reach over $27 billion by 2016, but those who shopped online for groceries still represented only about 4 percent of total grocery sales.

FreshDirect’s competition came from traditional brick-and-mortar grocery chains and a handful of other online grocers in New York City. The challenge was to compete on price while covering the cost of packaging items in the warehouse and delivering individual grocery orders. With margins so small, in order to be successful, some analysts estimated that the online grocers had to do 10 times the volume of a traditional grocer. This increased the pressure on FreshDirect to differentiate itself from other online and traditional brick-and-mortar competitors and capture market share. 

As the online grocery market continued to define itself, FreshDirect’s challenge was to continue to innovate in product purchase, storage and distribution, and attract loyal customers while keeping costs down and quality up. In addition, the challenge was to keep the food “fresh”! Could FreshDirect maintain its market share among competition from both online and traditional grocers?