FreshDirect: Is it Really Fresh? Harvard Case Solution & Analysis

Introduction

FreshDirect was an online grocery store that was launched in the year 2001. The company was cofounded by Joseph Fedele and Jason Ackerman. The first CEO of the company was Joseph Fedele. The company was introduced as an alternative to the existing traditional form of grocery stores. The company since it started, has offered more than 3000 items which include, meat, vegetables, fruits, bakery items, coffee, deli, cheese, prepared food, etc. The business of the company revolves around the business model which ensures the order received the day should be delivered latest by the next day through its own supply chain system.

The industry of online grocery accounts for a mere 2% of the total grocery market, which includes the traditional grocery industry also. The company operates in New York City, Brooklyn, Manhattan, Queens, Riverdale, Connecticut, New Jersey, etc. The business model which makes the company FreshDirect stand above its competitors is that the company does not depend upon suppliers and intermediaries to purchase different products. In fact, their company directly purchases the productsof grocery from the farmers directly, which ensures that the prices are comparatively low and the quality of goods and its freshness is maintained.

This method of business actually made the company sell grocery items at a cheaper price than other online grocery stores in the country. Basically FreshDirect is a company that allows the customers to order food online which gets delivered the next day. The mission of the company is “Our food is fresh, our customers are spoiled”. The company since its start has offered superior quality items to ensure long term relationships with its customers. FreshDirect also introduced a rating system on the website to further educate the customers about the quality of items delivered the previous day. The introduction of the rating system further enhanced the customers to trust theFreshDirect. However, recently the company has been facing severe competition from rivals along with the increasing fuel prices and the pressure from environmental groups. However, as the case states there is a lot of potential in the online grocery market, which FreshDirect can look to explore in the future?

Analysis

External Analysis

Porter Five Forces Model

Bargaining Power of Buyer: High

The bargaining power of buyer in the online retail industry is quite high. It is high because of the high price sensitive market. Along with this, customers do not trust the quality of food delivered by the online stores because they feel they cannot assessthe quality of food and its freshness. The switching cost in the industry is also low.

Bargaining Power of Supplier: Low

The bargaining of supplier is low for the industry. The reason it is low because there are a number of suppliers from which the industry players can buy products. Along with this, the brand loyalty in the industry is with the company and not with the supplier. With the increasing competition in the industry, the competitors offer discounts, promotions and lesser prices whichattract the customers. This has made the industry highly price sensitive for the suppliers.

Threat of New Entrants: Low

The threat of new entrants in the industry is low. It is low because of the high startup cost associated with the startup of the business. Along with this, the online grocery industry requires technical expertise, control over supply chain operations also. The industry accounts for a mere 2% of the overall grocery market: Slow growing industry. Along with this, online grocery had to keep material 10 times more than a traditional grocery.

Competitive Rivalry: High

The industry is highly competitive because of the increasing number of competitors. The competitors in the industry include the companies such as Peapod, NetGrocer, and YourGrocer. Strong relationship with farmers and raw material providers makes the industry highly competitive for all the players.

Threat of Substitutes: High

The threat of substitutes in the industry is high. As the switching cost is low in the industry, customers have various options to choose from. Products offered by traditional grocery stores provide as a substitute for the online grocery stores.

Internal analysis

Value Chain Analysis

The primary activities of FreshDirect is to create the value by preparing and providing foods (which is the main business of the company). The process of providing customers with high quality food is based on the “make to order” business model. This means that the products that are delivered to a specific customer are purchased for the customer specifically. FreshDirect has its own refrigerationunitswith specific temperature to ensure freshness and high quality to keep meat, bakery items and grocery items fresh. Along with this, all products which come in the company are tested through in-house laboratory before being distributed to the customer.

The company FreshDirect creates value through outbound logistics by delivering goods to the customer in an efficient and effective manner.................

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