Fresh-Direct Business and Management Analysis

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10th Jun 2020 Report Reference this

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Abstract

This paper explores the business practices of Fresh-Direct, an online grocer that mainly delivers fresh foods to large metropolitan areas such as New York City. I explore many factors which make their company unique, as well as what makes their company work or not work as an effective business model. In the following pages, I will examine management style, competitive advantages/disadvantages, challenges that face the company, and their use of strategic management to try to compete with powerhouses like Amazon, as well as local grocers in New York.

Fresh-Direct

Fresh Direct is a grocery delivery service that sells its goods one hundred percent online. The company was established in 2001 with the aim of serving city residents of New York and surrounding areas (Smith,2004).  When starting the business, the strategy employed was to eliminate any intermediaries and serve its clients directly at the lowest possible cost. Fresh-Direct has adopted several delivery methods all aimed at providing better service to its customers. The home delivery service tries to ensure that the clients were able to place their orders and receive them in a timely fashion, to separate itself from its competitors. Fresh Direct was able to implement a successful strategic management approach by establishing a value supply chain which emphasized efficiency to become more cost effective and less wasteful than normal grocery store chains. They also utilized a made-to-order strategy, which helped to increase the convenience factor seen by consumers (David,1998). Luckily, for Fresh-Direct, there was not too much competition at its startup. Online grocery shopping was a new, emerging concept in 2001; however, the new idea was still able to attract enough customers to become moderately successful (Michelle,2000). Fresh-Direct was operating out of a production center where they could store all their products making sure that they kept everything clean and at its prime. The lack of competition upon entry to the emerging market greatly affected Fresh-Direct and allowed them to thrive. Fresh-Direct made a very bold statement and marketed online groceries as the new way to shop for food. It was something that made shopping much easier and immediately gave them a competitive advantage. Fresh-Direct’s business model of efficiency was their greatest asset. Their elimination of a middleman during the shopping process and close proximity to their target market immediately set up their competitive advantage (Jay,1991). They had an effective logistical system in which they received all materials straight from local suppliers, greatly reducing the cost, as well as an effective delivery system utilizing warehouse to guarantee goods were ready to ship almost immediately and directly to the customer at a guaranteed time (Ana,2002). Eventually, competitors did pop-up, using the same platform around the New York City area: Your-Grocer, Peapod, and Amazon are currently the leading competitors (Smith,2004). The entry of Amazon, the leading company in delivery services has been the greatest challenge for Fresh-Direct and Fresh-Direct’s competitors. Amazon created a fresh grocery segment on their website, their service offered products that take a considerably longer time to perish and naturally attracted new clients, effectively reducing Fresh-Direct’s market share. Though Fresh-Direct and Amazon are competitors, their business strategies and delivery methods are almost similar though there are unique differences between the two that gives each of them an edge over their competitors. The primary similarity between the two delivery methods is that they warehouse their groceries, meaning that they each directly engage with clients by first stocking their groceries then supplying customers upon request (Jeyaraj,2007). This is superior to other companies which act like agents who link various sellers to buyers. Another similarity is that both Amazon and Fresh Direct deliver groceries directly to the homes of clients. This gives both a massive competitive advantage based on convenience alone, but it also means that their business models rely largely on online services and marketing to communicate and sell goods to their customers. One way that Fresh-Direct chose to compete with competitors was to partner with Amazon (Sahagian,2014). The two have formed a strategic partnership to improve the online grocery business despite their competition. The two companies focused on improving infrastructure. This makes sense considering that they both have the same strategy and delivery models that can only be improved by enhancing the existing infrastructure. Another challenge that the organization faced was the spoilage of its products. Some of  Fresh-Direct’s customers have scrutinized the freshness of some food they received since, because the way Fresh-Direct’s business model operates, the customers were not able to pick the foods out themselves, but rather depended on Fresh-Direct to decide what was and was not fresh (Gwo‐Guang,2005). The organization's administration has been working to amend this issue by updating its business model and introducing better hardware that could preserve perishables and better guarantee the freshness of its goods (Bruder,2011). Many concerns have popped up regarding the environmental impact of companies like Fresh-Direct. Packaging and exhaust fumes from fuel used in delivery trucks have begun to worry consumers that their convenience may come at a cost (Beekman,2012). The company significantly relies on its website to market, sell and engage with clients. Because of this Fresh-Direct has tried to make its shopping experience much more unique and convenient that the normal brick-and-mortar experience. As such, their website hosts a variety of different features. A search bar that lets you immediately find what you’re searching for, or various tabs at the top of the page if you want to look at all the different brands they offer in a certain section. They have a virtual shopping cart that allows you to save your items for later without the worry of anyone snatching anything out of it. They have tabs that allow you to view all on sale items immediately, and even offer a section displaying all currently valid coupon to convince all the bargain shoppers. There is a rating system that allows instant feedback from consumers, and a way for shoppers to give their opinion on products and of course see the opinions of others. They even have a lifestyle section that allows shopper to find products specifically tailored to their needs. All in all, these features all greatly enhance the convenience factor and give online shopping a giant advantage over the traditional shopping experience.

Citations

  • Ana Mejías‐Sacaluga, J. Carlos Prado‐Prado, (2002) "Integrated Logistics Management in the Grocery Supply Chain", The International Journal of Logistics Management, Vol. 13 Issue: 2, pp.67-78.
  • Beekman, Daniel (November 14, 2012). "Supermarket owners join fight against FreshDirect in South Bronx while activists fume over truck dump". Daily News (New York).
  • Bruder, Jessica (August 11, 2010). "At FreshDirect, Reinvention After a Crisis". The New York Times. Retrieved February 6, 2016.
  • David J. Teece, Gary Pisano, Amy Shuen, (1998). “Dynamic capabilities and strategic management.” Strategic Management Journal, Volume 18, Issue 7.
  • Gwo‐Guang Lee, Hsiu‐Fen Lin, (2005) "Customer perceptions of e‐service quality in online shopping", International Journal of Retail & Distribution Management, Vol. 33 Issue: 2, pp.161-176.
  • Jay Barney, (1991).” Firm Resources and Sustained Competitive Advantage.” Journal of Management 17: 99.
  • Jeyaraj, Anand; Cecez-Kecmanovic, Dubravka; and Mäkeläine, Ville-Pekka, (2007). "E-Grocer Strategies: A Case Study.” ECIS 2007 Proceedings. 139
  • Michelle A. Morganosky, Brenda J. Cude, (2000). “Consumer response to online grocery shopping”. International Journal of Retail & Distribution Management, Vol. 28 Iss 1 pp. 17 - 26.
  • Sahagian, J. (2014). Look Out, Amazon Fresh: Instacart Announces Grocery Delivery Expansion. Wall St. Cheat Sheet.
  • Smith, Chris (May 24, 2004). "Splat: New York City Grocery Competition". New York.

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