eGrocery strategies (FreshDirect Case Study)

FreshDirect is an online grocery platform that is based in New york. It was founded in 1999. The concept behind its business model is omitting the middle man, utilizing a userfriendly website and updated technology, high skilled and leading intellectual capital, state of the art production line with a high focus on hygiene in the production environment to produce healthy food, automated fulfillment center that increases the efficiency, keeping and maintaining food fresh with controllable high tech device to control the temperature all over the warehouse for the important procedures and points. This high-quality product must be with the low price products as the grocery customers are very sensitive to the price in the market. Even if FreshDirect does not own any stores that help it to cut many costs regarding the expensive rents but other imposed costs for online grocery shops such as packaging, huge operational and fulfillment cost, and logistics still exist and jeopardize their business model and low margins (Dess et al., 2019).

 The product complete information such as the stars and rating for the freshness of product, complete description of foods, having the privilege of having thousands of product in their stores, the possibility of comparing the different product in terms of taste, price and the energy are some of the strength and characteristic of this online grocery shop. There are many competitors from brick and mortar stores such as Safeway and wholefood to other online local grocery stores. Amazon fresh also is active in New York City and its suburbs. The main challenges are to compete and have a price war with the brick and mortar stores that own the main market share while covering the cost of operation, warehouse, fulfillment centers, distribution, and logistics. It is very imperative for grocery customers to feel and sense the freshness of products in stores, while it is just a promise and description in online stores by FreshDirect. Last but not least the challenges of keeping the product fresh from the operation side toward the delivery in another online grocery store challenges that must be cared for and managed toward tailor maid operation excellency (Dess et al., 2019).

Case points summary

·      Founded in 1999 and launched in 2001, Jason Ackerman & Joseph Fedele and Joseph Fedele is the cofounder that had an experience of Fairway Uptown store in new York city, high quality & low price in 1993

·      Online grocery with the promise of maximum next day delivery

·      Motto: Our Food is fresh, our customers are spoiled

·      the best food at the best price, exactly the way you want it, with 100 percent satisfaction guaranteed.

·      operating out of its production center in Long Island City, Queens, Manhattan, Queens, Brooklyn, New Jersey,…

·      In 2012, the company decided to move its facility from Long Island City, Queens, to a new 800,000-square-foot property in the Bronx,

·      The product includes Vegetable, Fruit, Prepared food, Cheese, Deli, Bakery, Meat, Fish

·      5,000 perishable products, accounting for approximately 75 percent of its sales, but only about 3,000 goods, which made up the remaining 25 percent

·      With a business model similar to computer maker Dell, FreshDirect deals directly with producers and makes food to order ("Dun&bradstreet", 2020).

·      ANNUAL REVENUE of 600$ million (wells, 2017)

·      $189 million investment round in 2016 led by J.P. Morgan Asset Management (Smit, 2018)

 Current Challenges

·      Customer Perception! (Physical stores) 67% do not buy grocery online

·      Out of stock problem due to the website Crashes & Glitches

·      Just A local hero, resident outside the metro area

·      Expensive operation and logistic expenses

·      Outbound logistic and distribution (thousands $ for ticket in the city, Increase Traffic, Double park, Pollution)

·      Lawsuit Not being environment friendly (Packages, Cardboard boxes & traffic because of truck delivery), bad impact on local small businesses

Fresh Direct Mision

Alignment of all employees from top managers to the bottom of the hierarchy is basic for strategic management, besides, to prioritize the goals and objectives of the organization is the second imperative step. The goal hierarchical for the organization is Strategic objective, mission, and vision. In this hierarchy, the organization goal spread from not specific but long goal to the bottom goals that are measurable and short-term. The vision is the longest time horizon and less specific goal in the pyramid. On the contrary strategic objective are short-term horizons and the most specific ones. Strategic objectives must have five characteristics to be meaningful. Firstly, it must be measurable by any indicator. Secondly, specific to describe exactly what should be done. thirdly appropriate that should be aligned with the company vision and mission. Fourthly realistic to be achieved and doable. Lastly timely to be done in a reasonable time frame (Dess et al., 2019). The Vision of FreshDirect was available on their website but there were no references for the vision of this company by student available references.

Mision: We're on a mission to deliver quality beyond question and convenience that adds something great to your day (Freshdirect, 2020).

Figure 1

FreshDirect Mission 

Note: FreshDirect mission. From " FreshDirect About Us webpage" by FreshDirect, 2020.

FreshDirect pioneered the short supply chain so you can experience fresh food at its finest. Food comes to us straight from the source and is delivered to your door at peak freshness in just a few days. That's less handling by middlemen—and it puts more money in the bank for local farmers, skilled artisans, and responsible fishermen (Freshdirect, 2020).

Figure 2

FreshDirect Customers’ rights and quality definition  

Note: FreshDirect Customers' rights and quality definition. From " FreshDirect About Us webpage" by FreshDirect, 2020.

Porter’s Five Analysis

The competitive environment consists of many parameters that are related to the organization strategy. Any potential or current competitors, organization customers and suppliers are included in the competitive environment. The five forces of porter five models are discussed in the following paragraph. These tools examine the competitiveness of the environment of any company in the related industry. This analyzes the organization's ability to rule the market by setting the price or increase operational advantage for example to minimize the cost (Dess et al., 2019).

The new entrant threat is the first force of the Porter model. It analyzes the possibility of a new entrant to enter the market. This possibility is related to the barrier to entry of any businesses and the investors’ interest to enter the industry and the reaction of competitors in the market. Economic of scale is one of the parameters that can hinder the new entrant. It means that any new player in the market needs to produce a lot to decrease the fixed cost and the final price of the product. The second thing that can strengthen the barrier for others to enter the market is the company brand differentiation. The higher customer loyalty and brand recognition can discourage others to risk for the new market entry. One of the important factors that new entrant always consider it is the capital and investment that is needed to start the new business. The higher investment needs more resources and more risk is involved, As a result, it is a good preventive reason for the potential competitors. When the switching cost of a consumer is high due to product customization or ant another reason it creates a good barrier for other suppliers to enter. Good access of companies to distributer as a competitive advantage might guarantee the firm to create a robust barrier wall for the competitors (Dess et al., 2019).

The second force of the porter model is buyers' bargaining powers. Consumers can threaten any companies by their unique powers or alternatives to force the firm to reduce the price and increase the quality. It can dramatically influence market profitability by high competition. If the product is not complicated and is standard in the market this bargaining power goes up. Undifferentiated products are so vulnerable to these aspects. Buyers have many options to supply it through. Also, a few cost of switching can alleviate the situation for the suppliers as the buyer can easily shift to other competitors. Also if the quality of the purchased product is not important for the last product then buyers are so price-sensitive and demand a price reduction or would utilize the alternative (Dess et al., 2019).

The bargaining power of suppliers is the third important factor that influences the competitive environment. It influences the firm by the probability that a supplier can increase the price or change the quality of products or services to lower standards. If the product is not common and some limited suppliers have the monopoly of the market then this force is enforced. Also when the company is not strategic and the main buyer of the product it increases the negotiation power of the suppliers. When the product that the supplier sells to the buyer is important and strategic to the buyer or the product is custom made and differentiated to the buyer it increases this force by higher risk for the company.

Forth force of porter is product or service substitution threat. Substitutive products or services can affect the firm by the shift of customers to the substitutive alternative. It is very important to search and monitor the market to identify this substitute. Video conference in comparison to business trip industries (both airline or hotel) is a good example of this substitute. The face to face meeting is losing people's interest regarding the corona pandemic or high cost when digital video conferences can effectively do the same job.

The last porter force is the level of competition and rivalry in the business that the company works in. When there is a high competition organization needs to compete severely by decreasing the price, increasing the quality, the service standard by longer warranties or other promotions. As a result, numerous competitors can cause a red ocean and tense market competition. Another factor that increases competition is slow to market growth. High fixed cost causes the industry to increase the production value to compensate for the high cost of each product. As a result, there is a huge amount of product in the market that increases the competition. If the differentiation in product or services is low it also increases the rivalry in the market. Also, a high exit barrier can increase competition by companies that struggle for retention and higher production (Dess et al., 2019).

Figure 3

FreshDirect Porter’s Five Analysis

Note: FreshDirect Porter’s Five Analysis.

PESTEL Analysis (FreshDirect)

Figure 4

FreshDirect PESTEL Analysis

Note: FreshDirect PESTEL Analysis.

Value Chain Analysis (FreshDirect)

Figure 5

FreshDirect Value Chain Analysis

Note: FreshDirect Value Chain Analysis.

SWOT Analysis

SWOT stands for weakness, strength, opportunity, and threats that create a framework to analyze the internal and external environment of the company. It is a basic rule for these tools that enable companies to rebuild and strengthen their strength, think again about their weakness to take care and remedy it, utilize important opportunities or specific one as it is not always going to last for a long time, and shield the organization from threats by identifying it and have a contingency plan if there is any risk. The reason that this tool is very famous and popular is its simplicity and comprehensive as it considers both internal and external parameters (Dess et al., 2019). The author of this essay has the opportunity to read a Harward business review recent article and dispute and challenges that a companies strengths can be its weakness (Brandenburger, 2019). The main focus of this new article is to see the organization map and basics upside down. Many organizations can be proud of their strength or even assumed strength to have the wrong assumption or do not care about it as it should be.

Figure 6

FreshDirect SWOT Analysis

 Note: FreshDirect SWOT Analysis.

FreshDirect Generic Strategy

Focus strategy is among the generic strategies that concentrate on a narrow segment of a customer in the industry. Utilizing a specific market niche is the main takeaway of focus strategy. It is divided into two main categories. First is the cost focus for the narrow target market and the second is differentiation focus that the company would investigate the differentiation in the targeted customer segment. A good example is the LinkedIn website that has focused on professional profiles in the social media business. There are many pitfalls in this strategy too. Cost focus advantages in a specific area and the narrow market might be not efficient as the internet has reduced the distances and has increased so many options without considering the international market. For example with e-commerce anybody far from the cities can easily access the goods and services at the same and competitive price. The Internet has facilitated the businesses and lowered the cost of new entrants. In the recent era, even products or services with a high level of focus are subjected to competition and new entrants. Another fact is narrowing too much and focusing in a limited person is not always an efficient way as this strategy can result in very less targeted customers or losing other customers that need more variety of goods and services (Dess et al., 2019).

Figure 7

FreshDirect Generic Strategy

Note: FreshDirect Generic Strategy.

FreshDirect, Amazon.com & Walmart.com Website Analysis (Similarweb, 2020)

Figure 8

FreshDirect, Amazon.com & Walmart.com Website Analysis

Note: FreshDirect, Amazon.com & Walmart.com Website Analysis

. From " Market, Share Stats, Traffic ranking," by Similarweb, 2020.

Online Grocery trend in the USA

Figure 9

Online Grocery trend in the USA

Note: Online Grocery trend in the USA. From " Proportion of U.S grocery spend made online," by Globaldata, 2019.

Estimation for the year 2022 that near 10 percent of grocery would be purchase online is 133.8 billion USD (Saunders, 2018)

Online Grocery trend in the USA

Figure 10

Online Grocery trend in the USA

Note: Online Grocery trend in the USA. From " What sort of grocery products do you buy online," by Globaldata, 2019.

Estimation for the year 2022 that near 10 percent of grocery would be purchase online is 133.8 billion USD (Saunders, 2018)

Grocery store market share in the USA

Figure 11

Grocery store market share in the USA

Note: Grocery store market share in the USA. From " Online Groceries- U.S Monthly customers," by Perez, 2020.

Case study analysis

Analysis of real cases is one of the efficient ways to learn a complicated concept in strategic management. To be challenged and involved in the middle of an organization issued would engage scholars to practice analysis of the case, decision making procedure, and action of strategic plan implementation. Three competencies are needed and would be developed in this analysis experience. As the identification of many different elements of the company must be studied and analyzed. As a result, differentiating skilled would be enhanced. To explain and find the solution in the case analysis process the speculation skill would be developed that empowers imagination and creativity. Last but not least another important skill named integration would be tutored to see every aspect of a project in a helicopter view from the top and have a big picture. At the end of the process, every element of the company must be consolidated and integrated into a chant and result in the final company mission and vision (Dess et al., 2019).

The main role of scholars as the assumption of these cases are top executives, the board of directors or companies consultant. After reading the material carefully, it is imperative to identify and find the problems. Conducting different strategic management tools and analysis is the next step. Many financial ratios are deployed and analyzed to check the financial health of the company. These parameters are divided into different categories. Cash ratios or current ratio shows the company capability on liquidity. The total debt ratio or debt-equity ratio assesses the leverage and longterm liquidity of the organization. Total asset turnover or inventory turnover implies the company's power in the utilization of the asset. Return on the asset, return on equity, and profit margin shows the profitability of the organization. Finding an alternative solution or proposing recommendations is the final step (Dess et al., 2019).

To have a better take away from the case analysis it is highly recommended to have an open mind and think out of the box. Utilizing the scholar's own experience is another method to boost the learning process. Standing on the solution and what that scholar believes is a good alternative to play an important role in presenting the case analysis. Straight to the point and precisely analyze the case is a great asset for the scholar to excel in the case analysis presentation. Any case studies have dedicated hint and learning points. As a result, gathering all the information and knowledge in all cases and change it to the insight would be a valuable take away from the various cases. In the end, having proactive critical thinking and assessing the whole procedure would benefit scholars to develop strategic management skills continuously (Dess et al., 2019). 

           All 12 strategic management chapters can be used for case analysis (Dess et al., 2019). The goals and objectives of the organization through vision, mission, and strategic objective are studied and analyzed. Checking if the Identification of stakeholders has been done properly. The environment analyses of both internal or external are the next steps. Human resources are one of the most important intellectual assets of any company. As a result, analyzing if the company tried to absorb, recruit, develop human resources or not. The business-level formulation identified which competitive strategy has been deployed by the organization on the business level. Cost leadership, differentiation or focus are these business-level strategies. The corporate level formulation is the next analysis. The international level analysis is also imperative by checking if the company chose a transactional, global or global multi-domestic strategy. Innovational and entrepreneurship strategy formulation is the next analyzing step (Dess et al., 2019).

Analyzing the strategic management case in a team can be more effective and simultaneously challenging. Team conflicts and different ideas can both beneficial or disadvantageous. To increase the quality of the team in the case study analysis there some methods that can be deployed. To dedicate more time to the team in an organized way can encourage participation and engagement related to the analysis. Also, it is important to have a precise agenda and expected outcome for each meeting. It is imperative to focus on strategy in the cases. Different ideas in the team can contribute to thinking out of the box approach and open mind evaluation. Different solutions and recommendations also can be discussed and debated to be selected as the best alternatives. One of the important deficiencies of any teamwork especially in this case study analysis is groupthink. Unanimity in the group, censorship among the team members are some of the systems of groupthink. To prevent this deficiency leaders should encourage all of the ideas, objections or issues to be expressed freely. Dividing groups to different subgroups or inviting other experts rather than team members in the group can be some solution to avoid group thinking problems (Dess et al., 2019).

Proposed alternative solution (1)

Continue and focus on being the best local fresh food online grocery and utilizing the technology & reinforcing the marketing

·      Professional digital marketing tools such as social media, CRM, reminding customers of their favourites, customer behaviour prediction, Database technology

·      Customer royalty system

·      Utilizing the JIT system in the warehouse, inventory cost reduction

·      Information control and effective flow toward the supply chain and supplying

Proposed alternative solution (2)

Decentralizing the inbound and outbound

·      Add many small fulfillment and distribution centers instead of just one big fulfillment center around the New York state

·      Location and logistic cost optimization

·      Close to the main supplier and consumers

·      On-time delivery and better customer satisfaction

Proposed alternative solution (3)

A strategic alliance with grocery and food delivery and pick up such as (Instacart, Doordash,…)

·      The business model in Instacart is based on key resources such as Local store partnership, Shoppers and customers near the store, and finally utilizing the technology for optimization and linking these resources (Sagar, 2020)

·      Partnering with shoppers near the fulfillment centers (Couriers) and distributing to the customer

·      The Value proposition: on-time and fast delivery for customer, additional and flexible income for shoppers through (Instacart & Doordash), Increase in sale and number of customers  

Proposed alternative solution (4)

To be acquired by e-commerce Giants

·      As the company is too popular in New York for its grocery delivery, fresh direct has been targeted for the accusation (wells, 2017)

·      Even if FreshDirect has focused on growth rather than cashing out till now but this approach could change

·      Amazon is investing a lot in Fresh food and it has already been in New York state, Fresh Direct has not enough resources and technology to sustainability compete Amazon

·      Amazon acquired whole food in the region in 2017 with the 13.7 Billion USD (Green, 2019). which stores are next!

Recommendations & conclusion

Due to the tense competition in the market and considering the analysis that shows that the online market is dominated by giant players negotiating for being acquired is highly recommended

·      Their competitive advantages is not sustainable

·      No chance of remarkable or sustainable success in future competition

·      Marketing war in the online grocery between Amazon fresh and Walmart in the region can benefit this negotiation, Shipt’s was acquired by Target in Dec 2017

·        Amazon and Walmart are the potential buyers (Acosta, 2019)

·      JM Morgan as their 189 Million USD investment in 2016 analyzing and monitoring buyer for FreshDirect (Genovese, 2019)

References

Acosta, G. (2019). FreshDirect Said to Be for Sale. Progressive Grocer. https://progressivegrocer.com/freshdirect-said-be-sale.

Brandenburger, A. (2019). Are Your Company’s Strengths Really Weaknesses?. Harvard Business Review. https://hbr.org/2019/08/are-your-companys-strengths-really-weaknesses.

Dess, G. G., Lumpkin, G. T., Eisner, A. B., & McNamara, G. (2019). Strategic Management:

Text and Cases. McGraw-Hill Education.

Dun&bradstreet. (2020). Fresh Direct Holdings, Inc. https://www.dnb.com/business-directory/company-profiles.fresh_direct_holdings_inc.d38031b709e1fd4dcbe537488c130870.html.

Freshdirect. (2020). About Us. https://www.freshdirect.com/browse.jsp?id=about_overview.

Genovese, D. (2019). JPMorgan eyeing buyers for FreshDirect: Report. Fox Business. https://www.foxbusiness.com/markets/jp-morgan-eyeing-buyers-for-freshdirect-report.

Green, D. (2019). How Whole Foods went from a hippie natural foods store to Amazon's $13.7 billion grocery weapon. Business Insider. https://www.businessinsider.com/whole-foods-timeline-from-start-to-amazon-2017-9.

Perez, S. (2019). TechCrunch is now a part of Verizon Media. Techcrunch.com. https://techcrunch.com/2019/08/13/walmart-tops-u-s-online-grocery-market-with-62-more-customers-than-next-nearest-rival/.

Peterson, H. (2020). The grocery wars are intensifying with Walmart and Kroger in the lead and Amazon poised to 'cause disruption'. Business Insider. https://www.businessinsider.com/walmart-kroger-dominate-us-grocery-amazon-gains-share-2020-1.

Sagar, P. (2020). Instacart Business Model: Insights Into Business & Revenue in 2020. aPurple. https://www.apurple.co/instacart-business-model/#:~:text=Instacart%20implements%20sharing%20economy%2Dbased,their%20products%20on%20the%20platform.

Saunders, N. (2018). Online Grocery & Food Shopping Statistics. OneSpace. https://www.onespace.com/blog/2018/08/online-grocery-food-shopping-statistics/.

Similarweb. (2020). freshdirect.com. https://www.similarweb.com/website/freshdirect.com.

Smith, J. (2020). Inside FreshDirect’s Big Bet to Win the Home-Delivery Fight. WSJ. https://www.wsj.com/articles/inside-the-food-fight-over-home-delivery-1531906200.

Wells, J. (2020). Big Apple e-grocer FreshDirect is a big target for acquisition. Grocery Dive. https://www.grocerydive.com/news/grocery--big-apple-e-grocer-freshdirect-is-a-big-target-for-acquisition/534972/.