Ch.3 FreshDirect: A Tech-Heavy Online Grocer Succeeds Where Others Fail

FreshDirect saves by having less waste and through energy efficiency:

-Buys and prepares what it sells -Held in climate-controlled warehouses to keep food fresher -Use of recycled biodiesel fuel cuts down on delivery costs and recyclable bags for delivery -AI software, coupled with conveyor belts and fiber-optic cables guide employees -A single truck run serves more customers in a smaller geographic area

FreshDirect model offers:

-Easy search function for a broad range of items -Data-driven recommendations customized through collaborative filtering software -Product mix heavy on fresh produce -One-click menus and appealing semi-prepared specials.

FreshDirect has built up a set of strategic assets that are now extremely difficult for any upstart to compete against

-Entry costs for would-be competitors are high. -The firm's complex, highly customized, and mostly proprietary software continues to be refined and improved each year. -Years of relationship building with suppliers, as well as customer data used to further refine processes.

Amazon:

-Purchased Whole Foods -Amazon Go cashier-less shops are within reach of NYC -Free same-day delivery to Amazon Prime subscribers -Bought massive Northern NJ distribution center

Higher inventory turns results in:

-Selling products faster -Collecting money quicker -Goods are fresher

FreshDirect buys directly from

-Suppliers, -Warehouse -Customer, -Eliminating middlemen.

The move from Queens to a bigger facility in the Bronx had a poorly handled systems rollout. (Even the skilled screw up)

-Turned on the Bronx system without sufficient testing. -Did not understand problems that might occur with a larger facility and more complex systems. -Switched orders immediately from old system to new, with no phased rollout. -->Flooded with complaints of broken eggs, spoiled fruit, mispackaged or missed orders, and more

There was a surge in online orders during the pandemic:

-Web traffic was up 800 percent. -Suburban orders doubled overnight.

Offers suppliers several benefits, all in exchange for more favorable terms results in:

-Will carry a greater selection of supplier products without "slotting fees" -Cobranding products -Paying in days rather than weeks -Sharing data

FreshDirect model cuts costs:

-Worker shifts are highly efficient -Workers have a steady, predictable shift Labor costs are 60 percent lower

FreshDirect uses technology to craft an ultra-efficient model that provides:

-farm-to-table freshness -massive product choice -supply chain savings

Advantages of FreshDirect:

-farm/fresh-freshDirect-Home eliminates time-consuming and costly intermediaries -FreshDirect offers suppliers: -->to offer more products than shelf-constrained grocers -->faster payment -->Cobranding -->Data

What contributed to FreshDirect's success?

-higher switching costs -customer data asset -strengthened brand asset

Examples of firms developing closer partnership relationships:

-planting is spread over a period of time to extend the freshness season for cantaloupes; blueberries; distinctive taste eggs. -Offers suppliers several benefits, all in exchange for more favorable terms.

To fix mistakes:

A tool called Splunk was used to gather log data, making it easier to recognize, identify, and respond to problems. -Customer-focused error handling -->Flubbed orders given priority service. Feedback to the CEO if problem persist -->Driver immediately dispatched to fix the order, even using Uber to send in worker. -->New customer orders packaged in special bags, drivers alerted to take extra care and be prepared to answer questions.

One threat is the potential entry of even better-funded, growth-seeking rivals:

Amazon Walmart Kroger Instacart Blue Apron

Define straddling

Attempts to occupy more than one position, while failing to match the benefits of a more efficient, singularly focused rival.

FreshDirect was uniquely positioned to have an outsized impact in a time of desperate need in an unprecedented crisis:

Deemed an "essential service" and staff considered "frontline workers." -Operations were shifted in ways to help maintain existing orders. -Increased order size could still be fulfilled as a single delivery.

What does imitation-resistant value chain do?

Developed a way of doing business that others will struggle to replicate, and in nearly every successful effort of this kind, technology plays a key enabling role.

Define inventory turns

It is the number of times the warehouse inventory is sold out and replenished during a given period. A higher figure means that a firm is selling products quickly.

How does customer data set work?

Its machine learning and AI systems provide so much information that a win-win situation is created. Using the system can be satisfying to the individual customer.

The firm develops closer partnership relationships:

Partnerships rather than competition, specialty products, and improved quality

Blue Apron:

Rise of meal kit delivery firms

What is a value chain?

Set of activities through which a product or service is created and delivered to customers

Describe economies of scale

The more you produce of something, the better you get at producing it — efficiency increases and costs fall as production volume rises.

Describe farm-to-table freshness

You'll get fresh, seasonal produce at peak flavor, and it's healthy because it rarely includes processed ingredients.

Define slotting fees

a cost that manufacturers pay to place their products on retail shelves

What do efficient work shifts look like?

avoiding the downtime and busy rush hour spike of storefront

What is comparative adavantage?

company's ability to produce something more efficiently than a rival, which leads to greater profit margins.

Example of AI software, coupled with conveyor belts and fiber-optic guides employees

from baking perfect baguette to verifying orders with 99.99 percent accuracy. Conveyor belt orders organized by neighborhood. Specialized staff responsible for inspecting products where AI can't

What is supply chain savings?

network between a company and its suppliers to produce and distribute a specific product to the final buyer. This network includes different activities, people, entities, information, and resources. The supply chain also represents the steps it takes to get the product or service from its original state to the customer.

Walmart:

opened up its own Bronx-based food-focused warehouse

Kroger:

purchased a bigger stake in British online grocer Ocado

(T/F) Data is the most critical aspect of marketing and sales. But most companies don't use it to their advantage and still base their business decisions on gut feelings and assumptions

true

(T/F) Data-driven companies are better able to track their progress and identify areas where they need to make improvements.

true

(T/F) Data-driven companies are more agile. They can quickly adapt to changes in the market and take advantage of new opportunities.

true

(T/F) Data-driven companies are usually more efficient. They have a better understanding of their customers and can target them more effectively.

true

(T/F) Data-driven companies tend to have better culture. They attract and retain top talent, and their employees are more engaged and productive.

true

(T/F) Fresh selection is offered at prices that can undercut the competition by as much as 35 percent.

true

(T/F) FreshDirect's inventory turns is 197 times a year versus 40 times a year for traditional grocers.

true

(T/F) Just five years after launch there were one-third fewer supermarkets in New York City than when FreshDirect first opened for business.

true

(T/F) Partnered with Restaurant Associates to employ laid-off food service employees to prepare ready-to-eat meals.

true

(T/F) The New York-based customers were a better fit for the model; they needed better selection, lower costs, and they wanted delivery.

true

(T/F) The customer base has ballooned to over 600,000 (population roughly the size of metro-Boston).

true

(T/F) The firm has been consistently profitable since 2010 and has continued to raise capital to fuel geographic expansion.

true

(T/F) The firm's share of the New York grocery market fell from 66 percent to less than 46 percent.

true

(T/F) The online grocery business was not initially successful. Several companies failed because of lack of product-market fit.

true

(T/F) These companies have a better understanding of their customers and what they want or need. They can also accurately predict future trends which helps them to make better decisions about where to invest their resources.

true

(T/F) Through "Operation 5-Borough Food Drive" the firm collaborated with borough presidents to deliver 4.3 million pounds of food.

true

(T/F) Traditional grocers can't copy the firm's delivery business because it would leave them straddling.

true

Failures included:

• Webvan - A dot-com company and grocery business that filed for bankruptcy in 2001 after 3 years of operation. • Streamline, Home Runs, and Shoplink. •Most customers were just fine with the conventional way of shopping.

NY Consumers:

•Are time-strapped •Lacked cars •Often lived in walk-up apartments where heavy groceries were more of a burden •Have very small kitchens

Other advantages of using FreshDirect:

•Customers can always find available products through search. •Gain useful information such as: -One-click recipes -Order size per person -Nutrition -Links to alternate meat cuts and semi-prepared options -Freshness ratings

What are the two of the most pressing problems for NYC shoppers:

•Limited selection •High prices

With the right data, you can get a better picture of your business, create better products, and do better marketing.

•They have access to more data than ever before. •Thanks to technological advances, companies can now collect data from various sources, including social media, website analytics, and customer surveys. • This data gives them a more complete picture of their customers and their needs. •Data-driven companies can make more informed decisions. They can test different hypotheses and see which ones work best.