Fresh Direct

Contents
Introduction 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 products

Direct 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 costs

Direct 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 charges

Direct Fresh charges very low prices for delivering the order at customer’s door which
add value to their strength.

Good relationship with suppliers

As 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 scale

As 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 Resources

Direct 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 staff

One 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 name

Direct 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 Oversea
Online 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 extension
The 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 Alliances
Direct Fresh can make strategic alliances with any big name to make them more
credible in the eyes of people.

3.4 THREATS

Competitors go online
The 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=TYnNNy1KGlQLK8KrlWKDRX3h
cJVNQTd1JvbS2KmMMmL2p2wQCJLn!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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