FreshDirect Is an Online Grocery Store Company - Case Study Example

Brief Description of the company The company name is FreshDirect, it is operating in food and grocery industry and its website name is FreshDirect.com. Description of company FreshDirect is an online grocery store company that is offering its customers the opportunity of ordering food and grocery online. The main aim of the company is to provide fresh food to customers online and allow them to order today on web and get the best food delivered to them at low prices on the next day. FreshDirect’s primary business is allowing its customers to order their food on their online store and get rid of the hassle of going to the grocery store as they can buy everything online while delivery is done right at their premises. The key players of the company are those people who launched it in 2001 i.e. Jason Ackerman and Joseph Fedele. As a result, many retail grocery stores started offering their service online by developing their websites; online grocery shopping was considered as the best way of doing shopping for food and it affected sales of various retail giants (Stacey, 2010). In order to place an order, the customers need to have an order of $30 along with delivery fees. The company was significantly impacted when competition intensified in the industry as competitors started offering local organic and grown food items but there were some aspects that these emerging competitors were unable to compete with the company. FreshDirect claimed to have revenue of about $250 million which is an increase of almost $20 million from previous year; the customer base is within the range of 20-25% (Bruno, 2010). SWOT Analysis Strengths: It has strong assets for financial purposes Strong and well-known brand in online grocery industry i.e. high quality products at low prices Technologically advanced software systems that make operations efficient along with supply chain Cordial and strong relations with distributors and suppliers in local market Customer service is exceptionally good Innovative approach is used by company’s management team Warehouse has about twelve different temperature zones to make sure that each food is kept at optimal temperature Health, safety and cleanliness are of utmost priority in the company Trucks have refrigerators so that food remains fresh Weaknesses: FreshDirect is offering perishable products while customers are demanding un-perishable products as well; 75% of its sales are made from fresh food and 25% from packaged goods Focus is limited to specific zip codes in New York and have not implemented proper market expansion strategy Its competitive advantage is on retail of products that are perishable which could slow down their diversification strategy especially of un-perishable products. Senior management is changed frequently which slows down the work of company Opportunities: FreshDirect can grow to become the most durable and trustworthy brand in the market as its customer base is getting stronger with each passing year It can expand its business at international, local and national levels The company can start delivery of products that are un-perishable along with its most famous perishable products It can either take over or merge with giant grocery retailers worldwide such as UK and Europe by focusing its attention on specific markets Threats: The supermarket chain which is Austin, Texas based by the name Whole Foods has threatened company by making available organic healthy food in Manhattan A store by specialty food retailer Trader Joe has been opened in down town union square which is FreshDirect’s prime territory YourGrocer has been launched with strategy focusing on bulk buying as customers prefer to order in large quantities of goods and get instant deliveries which is being offered by this online grocery store Local distributors and stores can make a strategy for delivering products that are perishable directly to customers In 2007, government of NYC proposed charges on congestion for traffic that enters into Manhattan Visible cardboard boxes of company are environmental threat as well Increase in fuel price and parking violation penalties are threats for FreshDirect Competitors may implement company’s existing advanced food technology software system Porter’s Five Forces Model According to Johnson et al. (2008), Porter’s five forces model is important for assessing the position of a company in its industry. It will help in making decisions strategically that will help in increasing profitability of FreshDirect. Threat of New Entrants The threat of new entrants is low in online grocery industry as new entrants will have to invest huge capital amount and need to have experience along with understanding about advance technological system for efficient management. Any new entrant will have to learn various aspects on online grocery stores and have access to reliable suppliers and well-known distributors. Power of Buyers Customers these days are aware of various options that are available online and have high power for bargaining their prices and needs. It is easier for customers to switch to other competitors if they are not provided high quality products at affordable price range. Power of Suppliers All customers of FreshDirect are loyal to the products being offered to them. When suppliers have good presence in market which means they can have easy access to local supermarkets and shops, they can switch to them but company has developed cordial relations with its supplies along with local stores. Hence, power of suppliers is of medium strength. Rivalry among competitors Since FreshDirect has both advanced online and food technology along with excellent management expertise, there are less chances that there is too tough competition in the industry. However, it has weak delivery coverage and limited variety of everyday products, YourGrocers and NetGrocers are focusing on this area and allowing customers to save huge amount of money (Barney, 2010). There is medium strength of rivalry among competitors at this stage. Threat of substitutes The strength of substitutes is low as FreshDirect has a loyal customer base that is supported by loyal distributors and suppliers; FreshDirect has made the reputation of offering fresh and top quality foods at low prices and has been able to successfully maintain this image. Strategy Used Every organization has a strategy that it uses to capture its target market; it is the underlying foundation on the basis of which everyday decisions are made to achieve organization’s goals. In other words, it provides sense of direction so that the company can take right course of actions (Grant, 2010). Presently, FreshDirect strategy in accordance with Porter’s generic strategies is low price one with main focus on offering unique and differentiated products that are of superior quality at low prices; it focuses on perishable products while delivering them directly to windows of customers in particular zip areas. Other companies can use this strategy only if they have access to reliable suppliers and distributors and also have efficient IT system in place. Issues and challenges faced by the company Online grocery industry is entering its maturity stage and all players have to pay adequate attention to customers. Amazon.com which is a retail giant on Internet has launched its dry goods business of grocery delivery that is a big threat for existing online grocery stores and retailers as it already has a strong customer base and an exceptional customer service. Amazon is offering 10,000 un-perishable products along with perishable food items; it also faced some problems in its delivery system which were later dealt appropriately. Every online grocery retailer has to provide superior quality service to online customers so that they don’t have to go to physical stores. FreshDirect has to pay thousands of dollars for penalties of parking tickets in order to reach customers with their orders on time. It even faced problems when NYC government imposed charges for causing congestion in traffic when entering Manhattan area. Fuel prices are rising globally which means that fuel cost will increase; company added surcharges of fuels to orders that were based on gasoline’s average retail price but they were set off with penalties that had to be paid for violations of parking. Competitive advantage can be sustained only when its follows proactive strategy which means identifying the changes in advance so that right course of action can be taken. It is currently in the maturity stage as the number of competitors in retail grocery industry is increasing and competition is being done on the basis of prices and customer service. Course of Action Recommended The main problems being faced by the company are lack of proper management team as its CEO has changed more frequently along with focus on perishable products and selected zip areas in New York. Hence, the course of action that can be taken by company is as follows: 1. First of all, CEO needs to be hired appropriately so that there is a right leader for the company to take it in right direction. 2. Like YourGrocers, FreshDirect should include un-perishable products in its product range as well and bring changes in its transportation system so that delivery is quick and faster; environment will be protected from congestion which was being caused by its delivery trucks. 3. It should consider expanding into nearby cities by having strategic alliances with local stores and supermarkets in the area so that they can supply the goods to their customers. 4. Most important thing is to make sure that environmental analysis is done on an ongoing basis so that any potential issue or challenge is identified rightly and it can be addressed proactively before it actually arises in the market. Opinion FreshDirect case study helped in understanding the importance of strategy development along with factors that need to be taken into account when designing the strategy. It also highlighted the problems being faced by the company along with competitiveness in business environment. Some environmental issues were raised by its operation but they were properly addressed by its management team. When businesses don’t function properly, they have to pay penalties for doing misconduct. Although, FreshDirect, faced several problems during its operations, it successfully tackled them and ensured that it met requirements of all of its stakeholders i.e. customers, suppliers, government, distributors, employees, community, shareholders and management team. References Barney, J. (2010). Gaining and Sustaining Competitive Advantage (4e). New York: Pearson Education. Bruno, K. (2010, June 29). Inside FreshDirect’s expansion. Forbes.com. Retrieved September 19, 2012 from www.forbes.com/2010/06/29/freshdirect-online-grocery-braddock-cmo-network-grocery.html. Grant, R. (2010). Contemporary Strategy Analysis (7e). Boston: John Wiley and Sons. Johnson, G., Scholes, K., & Whittington, R. (2008). Exploring Corporate Strategy (8e). New York: Prentice Hall. Stacey, R.D. (2010). Strategic Management and Organizational Dynamics (6e). New York: Prentice Hall. Read More