The webs no t the o nly channel to reach custo

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Unformatted text preview: an ultraef f icient mo del that makes an end-run aro und sto res. The f irm’s “sto ref ro nt” is a Web site o f f ering o ne-click menus, semiprepared specials like “meals in f o ur minutes,” and the ability to pull up prio r gro cery lists f o r f ast reo rders—all f eatures that appeal to the time-strapped Manhattanites who were the f irm’s f irst custo mers. (The Web’s no t the o nly channel to reach custo mers—the f irm’s mo bile apps are hugely po pular, especially f o r repeat o rders.)R. M. Schneiderman, “FreshDirect Go es to Greenwich,” Wall Street Jo urnal, April 6, 2010. Next-day deliveries are f ro m a vast wareho use the size o f f ive f o o tball f ields lo cated in a lo wer-rent industrial area o f Queens. At that size, the f irm can o f f er a f resh go o ds selectio n that’s o ver f ive times larger than lo cal supermarkets. Area sho ppers—many o f who m do n’t have cars o r are keen to avo id the traf f ic-snarled streets o f the city—were quick to embrace the mo del. The service is no w so po pular that apartment buildings in New Yo rk have begun to redesign co mmo n areas to include secure f reezers that can accept FreshDirect deliveries, even when custo mers aren’t there.L. Cro ghan, “Fo o d Latest Luxury Lure,” New Yo rk Daily New s, March 12, 2006. Figure 2. 1 The Fres hDirect Web Sit e and t he Firm’ s Tech­Enabled Warehous e Op erat ion Source: Us ed wit h p ermis s ion from Fres hDirect . See t he p hot ograp hic t our at t he Fres hDirect Web s it e, ht t p ://www. fres hdirect . com/about /index . js p ?s it eAcces s Page=c_about us . The FreshDirect mo del crushes co sts that plague traditio nal gro cers. Wo rker shif ts are highly ef f icient, avo iding the do wntime lulls and busy rush ho ur spikes o f sto ref ro nts. The result? Labo r co sts that are 60 percent lo wer than at traditio nal gro cers. FreshDirect buys and prepares what it sells, leading to less waste, an advantage that the f irm claims is “wo rth 5 percentage po ints o f to tal revenue in terms o f savings.”P . Fo x, “Interview with FreshDirect Co -Fo under Jaso n Ackerman,” Blo o mberg Televisio n, June 17, 2009. Overall perishable invento ry at FreshDirect turns 197 times a year versus 40 times a year at traditio nal gro cers.E. Scho nf eld, “The Big Cheese o f Online Gro cers Jo e Fedele’s Invento ry-Turning Ideas May Make FreshDirect the First Big Web Supermarket to Find P ro f its,” Business 2.0, January 1, 2004. Higher invent ory t urns mean the f irm is selling pro duct f aster, so it co llects mo ney quicker than its rivals do . And tho se go o ds are f resher since they’ve been in sto ck f o r less time, to o . Co nsider that while the average gro cer may have seven to nine days o f seaf o o d invento ry, FreshDirect’s seaf o o d sto ck turns each day. Sto ck is typically purchased direct f ro m the do cks in o rder to f ulf ill o rders placed less than twenty-f o ur ho urs earlier.T. Laseter, B. Berg, and M. Turner, “What FreshDirect Learned f ro m Dell,” Strategy+Business, February 12, 2003. Artif icial intelligence so f tware, co upled with so me seven miles o f f iber-o ptic cables linking systems and senso rs, suppo rts everything f ro m baking the perf ect baguette to verif ying o rders with 99.9 percent accuracy.J. Black, “Can FreshDirect Bring Ho me the Baco n?” BusinessWeek, September 24, 2002; S. Sieber and J. Mitchell, “FreshDirect: Online Gro cery that Actually Delivers!” IESE Insight, 2007. Since it lacks the mo ney-sucking o pen-air ref rigerato rs o f the co mpetitio n, the f irm even saves big o n energy (instead, staf f bundle up f o r shif ts in climate-co ntro lled co ld ro o ms tailo red to the specif ic needs o f dairy, deli, and pro duce). The f irm also uses recycled bio diesel f uel to cut do wn o n delivery co sts. FreshDirect buys directly f ro m suppliers, eliminating middlemen wherever po ssible. The f irm also o f f ers suppliers several benef its beyo nd traditio nal gro cers, all in exchange f o r mo re f avo rable terms. These include o f f ering to carry a greater selectio n o f supplier pro ducts while eliminating the “slo tting f ees” (payments by suppliers f o r prime shelf space) co mmo n in traditio nal retail, co branding pro ducts to help establish and strengthen supplier brand, paying partners in days rather than weeks, and sharing data to help impro ve supplier sales and o peratio ns. Add all these advantages to gether and the f irm’s big, f resh selectio n is o f f ered at prices that can undercut the co mpetitio n by as much as 35 percent.H. Green, “FreshDirect,” BusinessWeek, No vember 24, 2003. And FreshDirect do es it all with margins in the range o f 20 percent (to as high as 45 percent o n many semiprepared meals), easily dwarf ing the razo r-thin 1 percent margins earned by traditio nal gro cers.S. Sieber and J. Mitchell, “FreshDirect: Online Gro cery that Actually Delivers!” IESE Insight, 2007; D. Kirkpatrick, “The Online Gro cer Versio...
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This document was uploaded on 01/31/2014.

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