The e-retailer reports a $126 million net loss, stemming from a $640 million year-over-year increase in spending in the quarter on technology and content ...
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On a September weekend as the remnants of Hurricane Ivan dumped up to six inches of rain and New York prepared to host 90 foreign heads of state at a United Nations summit, FreshDirect altered its fulfillment program to ensure that orders were shipped in a timely manner. In addition to putting as many as three delivery employees in each truck, FreshDirect also had as many as eight additional employees waiting at predetermined locations to take orders off the trucks and deliver them on foot.
If an order was running late, FreshDirect, which has its logistics program tied into its customer service program, placed calls to customers informing them of the new expected delivery window. "We increased the number of employees taking orders off the truck and delivering them on foot during the Republican National Convention if certain streets were blocked off or hard to get to," Furbush says. "That`s a good example of why New York City is a unique food market and why we have to be flexible."
Other areas where FreshDirect likes to demonstrate flexibility are in its supplier relationships and customer marketing programs. Because the company`s business plan is so highly dependent on offering fresh products and delivery within a tight time frame, FreshDirect likes to develop unique relationships with local suppliers and feature them in ways that build their brand awareness or reputation in the New York food and beverage market.
For instance, FreshDirect`s seafood vendor, Gene Bracher Seafood, like its two dozen other local and regional suppliers, is featured prominently in its own merchandising portal where shoppers can read about Bracher Seafood`s background, an interview with the company`s president and the company`s commitment to supplying quality local seafood.
Spotlight on the chefs
FreshDirect also features its dozen or so executive chefs and food department specialists on the side of its delivery vans and in other advertising programs, including e-mail newsletters, which are delivered to as many as 300,000 opt-in customers.
The company`s core marketing area is Manhattan, as well as parts of Brooklyn and Queens. When the company first began delivering orders, the service was tested on Roosevelt Island and later in Battery Park City. FreshDirect targets virtually all of Manhattan south of 106th Street on the East Side and south of 125th Street on the West Side.
About 50% of FreshDirect`s business is from repeat shoppers, who typically spend $100-$110 each time they place an order. To entice more buyers, especially first-time customers, FreshDirect also offers special promotions such as giving first time customers $50 worth of free seafood spread out over their first three orders. "Our message is `Keep the food fresh and spoil the customers,`" says John Boris, vice president of marketing. "We use Internet order taking on the front end and many people see us an Internet company, but we try to personalize the shopping experience as much as possible."
Keeping busy New York food customers fed and happy at the same time isn`t easy--the average New Yorker eats out just under four times each week, but one-third of new restaurants fail in less than a year, according to Zagat Survey, a hospitality and restaurant ratings company.
Broadening the selection
To keep its customers content, FreshDirect is constantly adding products and adjusting pricing to appeal to a more diverse base of shoppers. FreshDirect recently opened a new kosher foods portal which features products from Aaron`s Best, a leading U.S. supplier of glatt kosher beef, veal, lamb, and poultry.
The company is also taking its web food selling concept to a new market: the corporate office. There are more than 350 million square feet of office space in Manhattan --nearly twice the size of all commercial space in Chicago`s Loop --and FreshDirect sees a ready-made market for its services in the form of catering corporate events and stocking office pantries. FreshDirect recently hired a new marketing firm, New York-based MWW Group, to help it further develop the business plan. But FreshDirect already has more than 100 corporate customers in Manhattan`s bustling midtown section, which on average spend more than $200 per order.
To target specific sections of the corporate market for growth, FreshDirect has added a new corporate section to its web site and collects ZIP codes from interested shoppers clicking on the page to see which office buildings and blocks offer the fastest expansion possibilities. "The service we provide is the same in theory, but we feel that we have a unique offering and distinct advantage in this arena. The corporate market is a potentially large market for us," Boris says. "Right now we`re focusing squarely on mid-town from 20th to 34th street and 40th street to 60th street where some very recognized names in corporate America are headquartered."
Between home and office delivery, Boris says FreshDirect is content with its current business base. "We are enjoying a nice period of controlled growth," he says.
But despite the fact that FreshDirect is catching on in the nation`s biggest local food market, industry analysts believe the company will have to expand outside of New York if it expects to keep pace with other national players. Peapod, for instance, now serves more than 13 regional markets and recently opened its newest hub in Baltimore. Likewise Safeway, which operates Safeway.com and Vons.com in addition to more than 1,800 stores under several brands including Safeway, Vons, Randalls, Carrs and Dominick`s, is poised for national expansion. "What FreshDirect is doing they are doing extremely well," Bishop says. "The question they need to ask themselves is about timing and not losing out on any potential expansion opportunities."
For his part Furbush isn`t ruling out going national, providing the web grocer follows the example of Starbucks and expands into other markets based on a winning regional plan.
Starbucks Corp. was a regional food retailer in Seattle for nearly 20 years before exploding onto the national and international coffeehouse market with more than 8,000 coffee shops in more than 30 countries and annual sales of $4 billion.