Problem summary
Fresh Direct is an online grocery store, which delivers perishable and packed food items to homes and offices in the wide range of U.S. cities. Most important principle of Fresh Direct functioning lies in providing clients with higher quality at lower prices. To ensure practical application of this principle, Fresh Direct created a modern production centre, hired expert personnel, paid special attention to quality management systems, ensured highest standards for cleanliness, health and safety and , what is most important, managed to establish unique direct relationship between growers and producers, which helped the company get reduced purchase prices from growers. Policy of the company is aimed at considering every order unique and, therefore, doing everything to adhere to specific needs and wants of each customer.
Despite all aforementioned efforts, Fresh Direct is currently experiencing a range of challengers. First of all, its activities experience restrictions called forth by growing competition at the online groceries market segment. The situation became especially threatening due to Amazon.com entry into dry-goods grocery delivery business as this company is widely known for exceptional quality of its services. A group of concerns is associated with growing costs related to delivery. This group includes rising cost of fuel and high costs associated with buying parking tickets. Particular concerns are connected with environmental impact of company’s activities (their influence on congestion, pollution and space). The company has also experienced some labour-related challenges. The last, but not the least concern for Fresh Direct is about the freshness of its food. To be more precise, customers, who are unable to view or touch food, while selecting it online, express concerns related to freshness of food items, ordered online. Therefore, it is hard for the company to get more people engaged in buying groceries online.
All these challengers require thorough analysis of consideration. Considering existing issues and possible ways to tackle them is a right step towards reinvention of the company and its getting competitive advantage over its rivals.
Analysis
SWOT analysis
Strengths:
- Fresh Direct has already got the reputation of the service you can use in case you do not want to want to groceries stores
- Fresh Direct already enjoys lots of tangible (state-of the-art production centre, trucks) and intangible resources (staff’s expertise, special software systems)
- The company has already worked out basic principles and ways it operates. (e.g., it has formed three particular ways of delivery to homes and offices, situated in city center and in suburbs)
- Fresh Direct formed special relationships with its suppliers, which allowed it to enjoy reduced purchase prices, when buying items from growers and producers
- The company does not have to spend costs on rent for a retail place
Weaknesses:
- As vast majority of people prefer to be able to view and touch food items before buying, the number of online groceries sales accounts for less than 2 percent of total groceries sales
- High costs, associated with delivery, which result in the need to charge a delivery fee
- Permanent turnover in CEOs
Opportunities
- As people become more accustomed to online shopping and computers exert ever growing influence on the household, some analysts expect e-grocery sales to grow rapidly in case service suppliers manage to meet customers’ expectations regarding quality of the service. (Nonetheless, it is doubtful that vast majority of those customer, who tend to prefer traditional shopping for groceries will easily refuse from their behavioural habits and transfer to using services, provided by e-groceries.
- Fresh Direct can expand the area of its activities, adding new packaged foods and complementary services
- The company can still elaborate on expanding its order-making and delivery options
Threats
- Despite high start-up costs, lots of companies tend to start e-grocery
- Environmental concerns
Porter’s 5 Force Analysis
Supplier Power
- Supplier power cannot be estimated as high due to the fact that there are lots of growers and producers, who can become potential suppliers of Fresh Direct.
- Moreover, products, which they supply are not unique
- Nonetheless, one of most important Fresh Direct strengths lies in having unique relationships with its suppliers, which let the company enjoy reduced purchase prices. Therefore, switching costs can be estimated as high.
- Switching will mean losing important strength, which is likely to result in the need to raise prices.
- As the business segment is characterized by high level of customers’ price sensitivity, changing suppliers is likely to exert an irreversible impact on the number of company’s customers.
Buyers’ Power
- The number of buyers cannot be estimated as high with regard to the total online grocery sales estimations in comparison with total sales of grocery market.
- However, there are no separate powerful buyers, who can directly influence prices
- Buyers can easily switch to services, provided by other companies. However, most of e-grocers lack specialization on perishables, which is peculiar for Fresh Direct
- Nonetheless, the costs of switching to services, provided by the majority of other online grocers can be estimated as high. (it is true for switching to services of YourGrocer and Peapod, as they have higher prices and delivery charges)
Competitive rivalry
- There are lots of rivals, who provide services connected delivering food items
- Nevertheless, most of them specialize on packaged goods, whereas Food Direct concentrates on delivering free perishables (fresh meat, baked goods etc.). This specialization gives Fresh Direct significant strength over the rivals
- Delivery charges, introduced by other rivals are higher than the ones applied by Fresh Direct
Threat of Substitution
- Some of buyers can easily substitute the service with returning to traditional shopping
- Such categories of online shoppers as time starved, new technologists and especially necessity users are not likely to use such kind of substitution, whereas other categories of online shoppers can easily return to traditional shopping.
- Furthermore, particularly, time starved and necessity users are interested in purchasing fresh perishable goods online and getting them delivered as soon as possible
Threat of New Enrty
- Entry barriers can be estimated as high due to the fact that entering the market segment requires high start-up and operating costs. Nonetheless, significant amount of investment does not necessarily mean high sales volumes.
- Strength of Free Direct in this regard lies in having well-developed internal technologies and practices, which are not likely to be imported by rivals
- Potential threat lies in the fact that some companies with well-established reputation can start e-grocery segment as one of the aspects of their ventures’ activities
Porter’s Value Chain Analysis
The primary value chain activities are:
- Inbound logistics. Due to the direct contact with suppliers and absence on intermediaries, the process of receiving raw materials can be characterized as transparent. Quality of inbound logistics is ensured through well-designed production centre and control over all of facilities.
- Operations. Quality of operations can be characterized as high. First of all, all the operations are performed by expert personnel. Secondly, production facility of Food Direct, situated in Long Island City is composed of special temperature zones, ensuring optimal temperature for each food item. Thirdly, quality management is ensured through the operation of special manufacturing software system, in-house laboratories’ functioning and high standards for cleanliness, health and safety.
- Outbound logistics. Specific practices of goods’ delivery have been elaborated on in terms of company’s activities. The company uses trucks to deliver goods. They are available weekdays 2 p.m.—1.30 p.m. and all day on weekends. Difficulties in this regard are associated with high parking costs, growing costs for fuel and environmental concerns. To meet the challengers, ways to reinvent outbound logistics should be considered.
- Service. The company pays special attention to meet every customer’s needs and wants. After the service was delivered, clients are often asked for feedback to provide all the customers with the opportunity to get a notion about the quality of service, provided by Fresh Direct. Nonetheless, the company still lacks some complementary services.
These activities are supported by:
- The infrastructure of the firm. The company has well-developed control systems (for instance, in-house laboratories, which are used to conduct quality tests by experts). Significant concern with respect to firm’s infrastructure is turnover in CEOs
- Human resource management. The company is staffed with expert personnel. No data on HR practices of the company is available
- Technology development. The company pays specific attention to facilities and means of control over facilities’ usage. It uses state-of-the-art technologies to ensure health and safety of its products.
- Procurement. Special relationships are established with suppliers, which lets the firm get significant discounts and, therefore, maintain client-friendly prices.
Alternatives
There are several alternatives, which can be considered and used to cope with existing issues of Fresh Direct. Some of them meet the concerns directly, whereas others are estimated to have indirect influence on current challenges. Despite the fact that alternatives are compatible, the company cannot use all of them due to high expenditures associated with implementing most of them.
- The first alternative lies in emphasizing Fresh Direct’s strengths and competitive advantages, and providing additional service. First of all, a range of promotional activities should be elaborated on to show customers Fresh Direct’s uniqueness as e-grocery, which focuses on free perishables, aiming at meeting expectations of every individual customer. These activities should stress convenience of the service, freshness of food items and excellent quality management systems, which function at Fresh Direct. To my mind, different types of media should be used along with word of mouth.
Excellent way to increase sales lies in expanding the range of services and making them more tailored for particular categories of customers. For instance, extra services can be introduced to meet the needs of corporate clients (e.g., adding set-up and platter-arrangement services). To get the understanding of what else customers need and want, it is worth conducting in-depth marketing survey among different categories of clients.
Such complex of activities is an excellent occasion to start a media campaign, which will aim at promoting Fresh Direct’s activities and help it get the reputation of the company, which does everything to be attentive not only to the needs of its customers, but of the nature. This campaign is going to be very different from usual advertising as it can exert a real influence on public perception of Fresh Direct.
- The last alternative lies in expanding the choice of brands of packaged foods and give customer a chance to make savings with Fresh Direct. Expanding the choice of packaged goods will help Fresh Direct to become more serious rival for YourGrocer, Peapod and other e-groceries, simultaneously preserving its competitive advantage, which lies in having the wide range of perishables on offer. Expanding the number of packaged goods will undoubtedly is the measure, which will undoubtedly meet customers’ eating habits and, therefore, make Fresh Direct more attractive for them. It is also worth concentrate on sales promotion activities. Extra time and money savings will be also appreciated by the customers.
In this regard it is worth considering the chance to implement New YourGrcoer-like strategy, aimed at helping customers making significant savings with everyday low prices for particular items. Offering everyday low prices and short-duration specials will undoubtedly influence the number of orders, which Fresh Direct gets. Promotional campaign should accompany all new offers.
Recommendations
Pro: usefulness in terms of attracting some new customers
Con: does not create extra stimulus for Fresh Direct’s existing clients, so may be used only together with other methods
Pro: meets one of most important concerns, which is mentioned with regard to company’s activities; will help to meet the needs of those customer, who prefer organic food; excellent occasion for promotion
Con: high expenditure on transferring to new delivery system and promoting eco-friendliness
Pro: will meet the needs of more customers; good occasion for promotion
Con: costs- and time-consuming idea
Pro: will undoubtedly attract more customers
Con: high expenditure
- Emphasize on promotion, advertising and social campaigns
Pro: chance to tell new clients about Fresh Direct and its advantages
Con: high expenditure
