FreshDirect: Tech & Competitive Advantage

• FreshDirect is featured in a Business Insider video titled "How 3 Million Grocery Items Are Delivered To Homes Every Week | Big Business"
• The video was published on YouTube on November 24, 2020

Learning Objectives (Section 4.1)

• Understand why FreshDirect succeeded where earlier online grocery efforts failed
• Recognize the key resources for competitive advantage that technology and a tech-enabled business model offer FreshDirect
• Understand product-market fit
• Understand the role of time in strengthening these resources
• Recognize why FreshDirect can use technology products that others can buy and still realize tech-created advantage

Learning Objectives (Section 4.2)

• Understand why FreshDirect struggled when switching from its Queens to the larger Bronx facility
• Recognize how the firm used technology and nontechnology solutions to address initial systems failure
• Learn steps a firm might take to avoid a similar fate in rolling out a complex system
• See how COVID-19 presented challenges and opportunities, and how it leveraged its unique business to provide additional community benefits as a government and nonprofit partner
• Understand the threats from nontraditional entrants in the online grocery market, and the reasons why Stop & Shop's parent firm acquired FreshDirect

The FreshDirect Story

• Important aspects of the NYC shopper environment include limited selection and high prices
• FreshDirect leverages technology to provide:
  • Farm-to-table freshness
  • Massive product choice
  • Supply chain savings

Why FreshDirect Succeeded

• Initial online grocery businesses failed with enterprises like Webvan, Streamline, Home Runs, and Shoplink
• Initial failure was due to customer satisfaction with conventional shopping and unwillingness to have someone else pick their produce
• These failures led to a lack of product-market fit

Product-Market Fit

• A key concept in entrepreneurship and new product development
• Conveys the degree to which a product satisfies market demand
• A good fit means successful efforts should be desired by customers and be able to scale into large, profitable businesses

Environmental Factors

• New York-based consumers:
  • Are time-strapped
  • Often lack cars
  • Frequently live in walk-up apartments where heavy groceries are a burden
• Customers find FreshDirect appealing
  • Shopping is simplified with data-driven web- and app-delivered recommendations customized with collaborative filtering
  • The "storefront" is a website offering
  • A product mix is heavy on fresh produce
  • One-click menus are available
  • Semi-prepared specials such as "meals in four minutes" are offered

Competitive Advantage

• Re-creating orders at a rival site after using FreshDirect represents a switching cost for customers
• Building a data asset allows FreshDirect to:
  • Give product recommendations
  • Plan marketing campaigns
  • Build more accurate customer experiences
  • Further mine data-driven learning for machine learning and other AI systems
• Customer experience strengthens the brand, the symbolic embodiment of product or service information

Online vs Brick-and-Mortar stores

• What is the value to FreshDirect of not having its products on display, in contrast to brick-and-mortar grocery stores?
  • What is the information that the customer gets?
  • What is the information that the customer needs?
  • What information does a store need to complete a sale?

Logistics Questions

• What information does a grocery store's supplier need?
• How can the supplier get this information?
• What information should a grocery store get from its supplier?
• What advantages are there to add or remove a step to your logistics?

Textbook Question 4.1.1

• Examine the FreshDirect business model and list reasons for its competitive advantage
  • Would a similar business work in your neighborhood?
  • Why or why not?
  • What strategic resources are strengthened by FreshDirect's online model that aren't available to conventional retailers?

Textbook Question 4.1.2

• What effect did FreshDirect have on traditional grocers operating in New York City?
  • Why?

Textbook Question 4.1.3

• Build a chart with columns for traditional grocers, Instacart, and FreshDirect
  • Add rows showing various advantages to the firm and consumer and use the row/column intersection to show whether the alternative in the column has an advantage over its rivals
  • List how the advantage is realized (e.g., lower costs/higher profits, or strategic asset creation such as improved brand, more data, switching cost creation)

Textbook Question 4.1.4

• FreshDirect uses some third-party software, like the customer profiling tool Selligent, that other firms can also buy and use
  • Why is it less threatening [to FreshDirect] if an online grocery newcomer uses the same tool as incumbent FreshDirect?

Textbook Question 4.2.1 & 4.2.2

• What problems did FreshDirect encounter when switching from Queens to the new Bronx facility?
• What steps could have been taken to avoid these problems?

Textbook Question 4.2.3

• How did FreshDirect regain customer trust?
  • Discuss the cost/benefit trade-off of this approach versus doing nothing

Textbook Question 4.2.4

• What did the Splunk tool provide for the FreshDirect team?

Textbook Question 4.2.5

• What challenges and opportunities were presented by the coronavirus pandemic, and in what ways did FreshDirect capitalize on these—both financially and nonfinancially?

Textbook Question 4.2.6

• Why are new, nontraditional competitors more of a potential threat to FreshDirect than area retail grocers?
  • What advantages do they bring to the market, and what assets does FreshDirect still have to compete against them?
  • What you think will happen to FreshDirect's growth and market share over the next five to ten years?

Textbook Question 4.2.7

• See if you can discover anything new following FreshDirect's acquisition
• Most mergers and acquisitions are disappointing
  • How does it seem FreshDirect's purchase has gone for its new parent?
  • Have you uncovered anything suggesting the acquisition has had benefits or has been less valuable than predicted?

Next Week's Topics

• Strategy and Technology:
  • Chapter 7
  • Chapter 3
• Introduction to Excel:
  • Appendix A

Topics in Two Weeks

• The Progress of Computing Technology:
  • Chapter 6