The company under consideration in this case study is FreshDirect. The website of this company is “www.freshdirect.com”. It is categorized under the Food and Grocery industry ( McNamara, 2012).
The company was founded in July 2001 by Joseph Fedele and Jason Ackerman ( McNamara, 2012). It has a very huge production center, which is based at Long Island City in New York. It is a company that allows customers to order their food and groceries online and then wait for a free home delivery ( McNamara, 2012). Jason Ackerman is currently the Chief executive officer in the company. FreshDirect provides its services to a wide range of customers who are located in different regions of the state of Manhattan, and as far as New Jersey. It has also been able to penetrate some areas of Connecticut. The company provides also pickup services to customers who visit their production center at the Long Island City. In addition, FreshDirect has corporate customers and clients across Manhattan ( McNamara, 2012).
One of the strengths of FreshDirect is that it enjoys a very strong brand in the online food and grocery market. It also has state of the art software system for monitoring production. The fact that FreshDirect has warehouses distributed to customers that are in twelve different time zones, ranks them higher than its competitors ( McNamara, 2012). FreshDirect has a very efficient customer service and a good relationship with the local suppliers and producers.
The major weakness is based on the fact that the company is restricted to offer perishable products only. Also, FreshDirect focuses on chosen zip codes within and without the area of Manhattan. This means that the sales area is small.
The company enjoys a strong brand and loyalty of customers, which is enhanced by customers who recommend their services to other people through word of mouth. FreshDirect still has a very huge customer base, which remains unexploited.
There are many other players in the market who can give a stiff neck competition to the company. The start-up costs are relatively low and therefore new entrants can find their way into the market.
PORTERS FIVE FORCES MODEL
Power of Buyers
There are two types of customers in this industry. These are single customers as well as corporate ones. In both cases, the company has to ensure that it comes up with innovative ways of retaining them because they can easily seek for similar services elsewhere such as supermarkets. There are no switching costs involved for the customer. FreshDirect offers free delivery and 50 USD worth of shopping for a new customer to retain them ( McNamara, 2012).
Power of Suppliers
Although suppliers of these products and services may not have a strong negotiating power, they may be lured by the other companies offering similar services like FreshDirect. However, the company has established a good relationship with local suppliers and food producers. This allows them to get the food produce fresh and direct from the farms at a cheaper price.
Threat of new entrants in the market
The start-up cost for this business is relatively low. This implies that threat of new entrants in the market is high. New businesses can mushroom thereby giving stiff competition to FreshDirect.
Threat of substitute products
There are alternative means of buying food and groceries from the stores, supermarkets and grocery outlets. It has been the conventionally known method in this industry. The advantage of visiting grocery stores for buying food and groceries is that the customer goes home with the products after paying for them ( McNamara, 2012). However, for online shopping, the customer has to wait for several hours before delivery is done. This implies that there is a high threat of substitute product.
The intensity of competition
The company faces relatively high competition from its business rivals. Although FreshDirect enjoys a strong online brand, there are many customers who prefer to visit the groceries and supermarkets, buy their food and carry it home with them.
The company employs a customer-focused approach which has enabled it to provide holistic solutions to its customers (McNamara, 2012). According to this strategy, management at FreshDirect listens to the needs and preferences of their customers and clients thereby being able to respond effectively to their requests (Bruder, 2010). It employs smart shopping; a strategy that ensures increased sales. This occurs whereby an online customer is observed on his or her shopping behaviors such that the software system reminds them about a product they might need and have omitted in their shopping cart. Furthermore, the company runs a cost effective plan by not having physical structures for retail stores (Bruder, 2010). Instead, FreshDirect runs a set of warehouses and a website. This approach aims at providing more solutions at a lower cost to their customers than what their competitors could offer.
ISSUES AND CHALLENGES AFFECTING THE COMPANY
The company was facing a stiff competition from online shopping giants such as Amazon after they introduced grocery delivery business. Amazon enjoys a wide customer base coupled with a powerful brand for excellent customer service. In addition, FreshDirect deals with fresh foods and groceries that are highly perishable. This implies that it has to deliver them in time to avoid getting spoilt ( McNamara, 2012). The company therefore incurred excessive parking fee costs while delivering orders to its customers. The situation was made worse by rising fuel prices which translated to constrained profits.
In addition, package of products in large separate boxes posed a threat to the environment. There was no efficient mechanism to dispose these boxes or send them back to FreshDirect facilities for recycling ( McNamara, 2012). Although the idea was originally aimed at providing clean and fresh products to the customers, this move translated to high costs, which could otherwise be avoided. There were still other concerns by the public on the freshness of meat and fruits as well as vegetables from the company. However, this challenge was overcome when a rating system for food quality was created in the company.
OPINION AND RECOMMENDATION
The company made a great risk to earn customers’ trust. Therefore, it now needs to make use of this asset and venture into other markets because it already has a strong brand ( McNamara, 2012). Besides, FreshDirect should develop a mechanism for recycling the boxes that they use to deliver products to customers. This will save on their operational costs and hence increase the profit margins. Also, this move will help to reduce the public concern on the safety of their environment as far as disposal of these boxes is concerned. In addition, the company should introduce dry goods grocery products which are not perishable. This will help to cut on their costs of operating their delivery business ( McNamara, 2012). Currently, FreshDirect has to deliver their products within a given period before they go get spoilt and therefore they cannot avoid spending more to satisfy their customers