Fresh Direct

ContentsIntroduction of Organization:......................................................................................................................2

1. External Analysis of Fresh Direct:........................................................................................................2

1.1 Porter’s Five Forces Analysis:.......................................................................................................2

1.1.1 Rivalry: High:........................................................................................................................3

1.1.2 New Entrance: Low Barrier..................................................................................................3

1.1.3 Power of buyers: Very High.................................................................................................3

1.1.4 Power of suppliers: High for Fresh Direct............................................................................4

1.1.5 Threats of Substitutes: Low..................................................................................................4

1.2 PEST Analysis:..............................................................................................................................4

1.2.1 Economic:............................................................................................................................4

1.2.2 Political:...............................................................................................................................5

1.2.3 Social:...................................................................................................................................5

1.2.4 Technology:..........................................................................................................................5

2. Internal Analysis of Fresh Direct:.....................................................................................................6

2.1 Fresh Direct Target Market......................................................................................................6

2.2 Positioning & Medium of Advertisement.................................................................................6

2.3 Customer’s Demand................................................................................................................6

2.4 Fresh Direct Operation Flow....................................................................................................7

2.5 Pricing......................................................................................................................................8

Fresh Direct value chain......................................................................................................................8

3. SWOT Analysis.................................................................................................................................9

3.1 STRENGTHS..............................................................................................................................9

3.2 WEAKNESSES.........................................................................................................................10

3.3 OPPORTUNITIES.....................................................................................................................11

3.4 THREATS................................................................................................................................11

References:................................................................................................................................................12

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Industry Analysis of Fresh Direct

Introduction of Organization:

Fresh Direct came with innovative idea of online grocer stores with an aim of delivery

services to the residents and office in the City of New York in 2002. They also start

delivering the grocery at very next day in Manhattan, parts of Hoboken, New Jersey.

Fresh Direct was founded by Joe Fedele & Jason Ackerman who was former

investment banker and also specialized in grocery industry. Fresh Direct follows the

Just in Time approach to deliver the groceries and meals to its customers which

reduces the wastages and improves quality & freshness.

Fresh Direct had a rapid market penetration because of delivering quality foods at best

available rates. It even offers rate lesser than the rates of super markets of its base

cities. It is also known for its locally grown items and organic foods. Further, Fresh

Direct also delivers many kosher foods and for this they got the certificate from Marine

Stewardship Council as a ‘Sustainable Seafood Vendor’ (freshdirect.com).

1. External Analysis of Fresh Direct:

External analysis of any organization consists upon the Porter 5 forces analyses and

PEST analysis. It guides what can affect the strategic planning of that organization

externally (Smith, 2009).

1.1 Porter’s Five Forces Analysis:

Porter’s five forces analysis can be used for the profitability analysis of the company. It

consists of five main powers of rivalry, threats of new entrances, power of buyers and

sellers and threats of substitutes. If these forces are on the higher sides, then profits are

on the lower side (Crawford & Benedetto, 2003). These forces are:

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1.1.1 Rivalry: High:

The rivalry is on a higher side as in early era, the grocery chain stores were dominated

by Key Food, Pioneer, Red Apple and Sloan’s. Subsequently with the arrival of Korean

market Era brought fresh food to almost every corner of the city. Currently Fresh Direct

has to face tough competition from Zabar’s, Citarella and specially Fairway. But

specially talking about online grocery, Fresh Direct has two major players to face. These

are E-Mart & Cold Storage. Further it has to face competition in fruit grocery market as

well like competing with Sun Moon Fruit Chain Store (Keynote, 2010).

1.1.2 New Entrance: Low Barrier

The entry barrier into the fruit market is quite low. Specially if someone wants to enter

into the market of online grocery stores, because the set up cost of making website and

do business online is quite cheap. If somebody wants to come in competition with the

likes of Carrefour or Giant Mart, it needs big investment but competing Fresh Direct is

easy just like establishing Econ Minimart and Homeclub.com. However, it is not

absolutely free to enter into the market as firm need big initial inventories and their

storage needs without having any determinable market share. It involves big risk to

enter into the market without knowing much about the future business share (Mintel,

2009).

1.1.3 Power of buyers: Very High

The Bargaining power of buyer is very high as e-orders are not the only source of

buying grocery. It can be bought from any corner of the city, whether from a big chain or

from a small stores. Moreover, the shops and markets are increasing in the city as well

which provide more cushion to the buyer to get the grocery on most economic prices.

But in seasons like Christmas, when there is a shortage of supplies and customers face

inconvenience in getting the demand available, they prefer online system.

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1.1.4 Power of suppliers: High for Fresh Direct

For an online grocery retailer, sellers means the companies which provides trucks on

lease for delivery purposes, the companies that may be providing delivery services or

may be providing cold store rental services and IT companies who provide internet

services for managing websites.

The suppliers of fresh food have strong bargaining powers in dealing with small

company such as Fresh Direct as compared to big companies. IT vendors have lesser

bargaining powers because of extra supply in e-commerce field. Delivery service

providers and cold storage facility providers are also easily available so there powers

are also limited (keynote, 2010).

1.1.5 Threats of Substitutes: Low

As the items which are dealt by the Fresh Direct are common needs of the people and

can’t be substituted with other items so the threat of substitute is low. There is no

substitute for such items except for substitution amongst different kinds of grocery.

1.2 PEST Analysis:

1.2.1 Economic:

In recent times, grocery trade had grown steadily. Recent Economic crisis also didn’t

hurt grocery stores sector a lot, even it contributed positively in the sector by reducing

the people habit of eating out & money saving measures prompted people to use the

grocery stores services more than before. Grocery trade had been increased in New

York from $1,876 million in 2002 to $3,643 in 2010, which almost represented 7.5%

growth in the users in just less than 10 years. Moreover, average spending per family is

also increased in last two years or so (mintel, 2010).

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1.2.2 Political:

The U.S. food system is a complex network of farmers and the industries that link to

them. Those links include makers of farm equipment and chemicals as well as firms that

provide services to agribusinesses, such as providers of transportation and financial

services. The system also includes the food marketing industries that link farms to

consumers and which include food and fiber processors, wholesalers, retailers, and

foodservice establishments.

1.2.3 Social:

Almost 85 % of the people of New York City use the internet facility and with so much

big proportion of people using internet facility can have favorable effects on the

business growth of online grocery. These people can be prompted for sale by throwing

fascinating ads on the internet and social websites.

1.2.4 Technology:

For an online business, updating the system which provides the support for business is

very critical. Currently, in this respect Fresh Direct is lacking and really needs to adapt

as per need of time (Brown et al, 2000).

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2. Internal Analysis of Fresh Direct:

Internal analysis of the company analyzes the situation within the organization

prospective. It looks that what are the nature of operations of the organization and

whether they are managing them appropriately (Smith, 1993).

2.1 Fresh Direct Target Market

The main class of Fresh Direct target markets can be the single young executives, who

have less time to spend in markets but are conscious to have health and fresh food and

also have internet access. These people are from the age group of 26-35 mainly of New

York City. The other targeted class is the corporate customers like restaurants and

hotels.

2.2 Positioning & Medium of Advertisement

The main dimensions on which Fresh Direct positions its goods and services are:

Quality, Freshness & customer’s convenience. Although the prices are also competitive

but the main focus is not on the prices. The medium of advertisement which is used are

advertisements on the internet, promotions at different events, brochures and mail

drops.

2.3 Customer’s Demand

Fresh Direct ascertain consumer’s demand by using its past experience with customers.

For instance most of the orders are usually received on weekends and orders are

received on Monday. Moreover, orders quantum is usually increased on Public holidays.

Feedback at the time of delivery is taken for determining customer’s demand along with

the outbound calls. This feedback tells whether customers are happy with the Fresh

Direct services or not, and also what changes they want in current system.

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2.4 Fresh Direct Operation Flow

The operation flow at Fresh Direct is simple relatively. Customers place their orders

through internet or fax. These orders are updated by Fresh Direct system on hourly

basis and sent to delivery department for delivery purpose. Currently Fresh Direct is

relying mainly on internet source and once it gets down, it chokes all he system. It is the

main concern for Fresh Direct currently. It needs to improve the web based system

because it can be lose them valuable customers.

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2.5 Pricing

Frequent fluctuations in the prices of grocery items make it very tough for a company to

update the prices. Although Fresh Direct wants to eliminated the factor by updating the

system after almost every one hour. Moreover it will be the IT vendor to be asked for

any help if some problem will arise in updating prices. Further, people expects the

prices to be on lower side as compared to the ordinary stores so this means that more

checks on pricing is required.

.

Fresh Direct value chain

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3. SWOT Analysis

SWOT analysis facilitates the business to formulate its policies on the basis of its strong

& week points and after considering the threats and opportunities in the relevant

industry (Cirillo, 2009).

.

3.1 STRENGTHS

Convenience for customers Fresh Direct aim is to maximize the convenience for the customer. In the fast life, it can

be a big plus point for any company.

High quality productsDirect Fresh claims that they take fresh products from the farmers and provide to

customer. This will guarantee a high quality product to the customer and can be

reckoned as a strong point.

Low inventory costsDirect Fresh prefers JIT approach which means that they have to bear less inventory

cost and so risk of losing inventory because of its perishable nature is low.

Low delivery chargesDirect Fresh charges very low prices for delivering the order at customer’s door which

add value to their strength.

Good relationship with suppliersAs supplier bargaining power is high in case of Fresh Direct so it has to maintain good

working relations with them. In turn they provide it better services of delivery, freezing

etc. This increases the strength of the company.

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Closer working relationship with customers Direct Fresh is a niche organization. It has stronger ties with the customers which is

one of his stronger points as well.

3.2 WEAKNESSES

No economies of scaleAs Direct Fresh adopted JIT theory for its inventory management and it depends upon

the outside suppliers for major services of transportation and storage so economies of

scale of having own unit is not achieved. Moreover as Direct Fresh has not very big

market share so economies of scale regarding cost of sales is yet to be achieved.

Limited Financial ResourcesDirect Fresh is a medium scale company which has limited financial resources to meet

its strategic plans. That constraint of financial resources can be a weak point in

deploying projects which are profitable but have high start up cost.

Lack of expert staffOne of the major weakness of Direct Fresh is that it has to survive with less expert staff.

Due to limited resources, hiring of expert staff can also be a big issue.

Weak brand nameDirect Fresh brand name is not a big name still so that people can rely on the products

without thinking and also make compromise on prices. They have to take care a lot

before making any move specially concern with customers.

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3.3 OPPORTUNITIES

Expanding OverseaOnline grocery can be a very good idea in oversea countries. Direct Fresh can use its

experience to penetrate in other markets specially markets of less developed countries.

In those countries they can have a big time opportunities to become the market leader.

Product extensionThe other opportunity lies with Direct Fresh can be the extension in the product range.

They can come up with the products which are not available in local markets.

Strategic AlliancesDirect Fresh can make strategic alliances with any big name to make them more

credible in the eyes of people.

3.4 THREATS

Competitors go onlineThe threat which can reduce the market for Fresh Direct is that their competitors will go

online. Specially if any of the big brands like G-Mart can start online grocery facility, it

can hurt the business share of Fresh Direct as because of more economies of scale,

rates of G-Mart will be better than of Direct Fresh.

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References:

1. Brown, Jeffrey R. and Goolsbee, Austan (2000), “Does The Internet Make Markets MoreCompetitive? Evidence From The Life Insurance Industry”, Working Paper, National Bureau of Economic Research.

2. Cirillo, J 2009, 'Running of the Bull. (cover story)', Beverage World, 128, 6, pp. 18-22, Business Source Premier, EBSCOhost, viewed 09 January 2011.

3. Crawford, M. & Benedetto, D. A. (2003), New Products Management, 7th edition, McGraw-Hill/Irwin, NY, USA.

4. Data regarding company has been taken from keynotes & mintel.

5. Freshdirect.com., available [online] at :

http://www.freshdirect.com/about/

index.jsp;jsessionid=TYnNNy1KGlQLK8KrlWKDRX3hcJVNQTd1JvbS2KmMMmL2p2w

QCJLn!1701278509!-1708842002?siteAccessPage=aboutus&successPage=/index.jsp

6. Smith, E. R. (1993), Food demands of the emerging consumer: the role of modern food technology in meeting that challenge Am J Clin Nutr 1993 58: 2 307S-312S.

7. Smith, I 2009, 'Brand in the news: Red Bull', Marketing (00253650), p. 8 Busines

Source Premier, EBSCOhost, viewed 13 January 2011.

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