FreshDirect
FreshDirect is an online grocer that delivers to residences and offices in the New York City metropolitan area. It also offers next-day delivery to much of New York City and parts of Nassau and Westchester Counties, New York; Fairfield County, Connecticut; and Hoboken, Jersey City, and Newark, New Jersey; Philadelphia, Pennsylvania; and Washington, DC. FreshDirect custom-packages groceries and meals for its customers, a manufacturing practice called Just In Time that reduces waste, and improves quality and freshness.
The service is popular for its distribution of organic food and locally grown items, as well as items that consumers see in supermarkets daily. It also delivers numerous kosher foods and is recognized by the Marine Stewardship Council as a certified sustainable seafood vendor.
History
Founding and initial growth
The company was founded in 1999 by former Fairway Market CEO Joe Fedele and Jason Ackerman, a former investment banker who specialized in the grocery industry. Introduced to the New York market in 2002, its business grew popular for its convenience, fresh food and comparatively lower prices than many Manhattan supermarkets although less competitive elsewhere. In 2005, a New York Times article about bringing in experienced executive Richard S. Braddock described it as"signaling that it may be looking toward an initial public offering." Initially the former Citicorp and Priceline executive was the company's Chairman.
FreshDirect experienced significant customer quality issues in its early years. Prior to 2008, 85 percent of its new customers only placed one or two orders before abandoning the service. In early 2008, FreshDirect fired its CEO, and added that title to Braddock, who "served as chairman and CEO of Fresh Direct from March, 2008" thru early 2011.
FreshDirect changed strategies, discontinuing solicitations of new customers for two years while it focused on improving customer service. The company also implemented real-time data reports in order to monitor and quickly correct customer service issues. The company's new strategy worked, and by 2010, a majority of the company's revenue was derived from 45,000 to 50,000 repeat customers. By 2013, they had 250,000 customers, $400 million in annual sales, and was being described internationally as a "home delivery success story."
Webvan
By 1999 the concept had already been tried in ten USA cities; by mid 2001 Webvan "flamed out... having spent almost $1 billion trying." The industry's retry resulted in "sales of $2.4 billion in 2004."Morrisons investment
In 2011, UK retailer Morrisons bought a 10% stake in the company in order to learn about online shopping in order to launch its long-awaited online shopping service in the UK. Using the investment to gain access to FreshDirect's operations, Morrisons reported in 2013 that it had "learned a lot about the economics of picking and delivery of food" as well as its reputation-building strategy. In March 2014, Morrisons announced that it would divest its stake in FreshDirect as part of a restructuring effort.Expansion plans
FreshDirect has expanded its service area slowly. It began service in parts of Manhattan, Brooklyn, and Queens in 2002, but by 2010 it still had not covered the entire New York City area. The company began testing service in select parts of Connecticut and New Jersey in 2010. Although it served some parts of the Bronx earlier, FreshDirect did not offer service to all of the borough until 2012.As early as 2010, FreshDirect began looking to expand from the New York City metropolitan area into additional East Coast markets such as Boston, Philadelphia, or Washington, D.C. It also considered that suburbs, while being more distant and requiring paying tolls, would only need one driver, and with a greater percentage of families, would yield more positive results.
In January 2013, FreshDirect officially launched service in the greater Philadelphia metropolitan area. In September 2013, the company also launched new service in parts of the state of Delaware.
Operations
FreshDirect uses SAP AG software to process thousands of orders placed on its 24 x 7 website every night. The site is configured to handle up to 18,000 simultaneous shopping sessions.Orders are dispatched to the kitchen, bakery, deli as well as fresh storage rooms, produce ripening rooms and production areas within the company's refrigerated facility. All order components are custom-cut, packaged, weighed and priced. In the case of dry goods or frozen foods, items are picked from storage before being placed inside bins that travel along conveyors to the sorting area. There, products in a customer's order are scanned and gathered in corrugated fiberboard boxes. The boxes are labeled, recorded and loaded into refrigerated delivery trucks. Other software optimizes for how much is going where.
The company is based in a building in Long Island City. Though the website and plant processes were in development for several years before its public launch, the company made its first deliveries to Roosevelt Island on July 11, 2002. FreshDirect has since expanded service to New York, Kings, Queens, Bronx, Nassau, Suffolk and Westchester counties in New York, as well as parts of New Jersey, Pennsylvania, Delaware, and Connecticut. The company now has almost 2,000 employees.
FreshDirect is currently building a new distribution hub and corporate headquarters at Harlem River Yards in the Bronx, which is expected to open in 2018. The new facility is expected to expand FreshDirect's operations capacity and create 1,000 additional jobs.
Controversies
Unionization vote
Employees at FreshDirect have made several attempts to unionize. In 2004 and 2005, Teamster Locals ran two unsuccessful campaigns to organize FreshDirect's 500 delivery workers. Following these failed campaigns, Local 348S of the United Food and Commercial Workers ran a successful organizing drive in 2006 and subsequently negotiated a contract for FreshDirect's drivers. Although Anthony Fazio Jr., the UFCW local's secretary treasurer, said his union waged a tough fight to win recognition, some plant workers reported that company officials had openly encouraged workers to sign up with 348S. Local 348S has been accused by other unions of collusion with employers, negotiating "sweetheart contracts" with few real benefits for workers and protecting businesses from more aggressive unions in exchange for making it easy for the union to win a unionization election. In the event, the contract negotiated for the drivers included no minimum starting wage, and had a maximum that caps the highest wages the company must pay at $12 to $18. Raises totaled $2.55 over the life of the 5-year contract.In the summer of 2007, Local 805 of the International Brotherhood of Teamsters began signing up workers at FreshDirect's warehouse in Long Island City. UFCW Local 348-S subsequently announced their intention to organize the warehouse workers. 348-S later filed for an election, which was held on December 22 and 23, 2007. Approximately 530 out of the warehouse's 900 employees voted in the election. Of those that participated, 426 workers voted against joining any union, 73 workers voted to join the Teamsters, and 31 workers voted to join UFCW 348-S.
The election, however was mired with controversy. Days before the election U. S. Immigration and Customs Enforcement officials "announced plans to inspect the company’s I-9 employment eligibility records." FreshDirect asked its employees to verify their U.S. work eligibility. As a result, 200 to 300 employees were dismissed, suspended or quit just days before the vote was scheduled.
Union activists and some New York City elected officials claimed FreshDirect and I.C.E. intentionally created an atmosphere of fear and intimidation. FreshDirect publicly denied this, noting that some immigrant employees opposed unionization, and suggested that union had called immigration authorities to drive off workers they had failed to win over.
Opposition to South Bronx move
FreshDirect originally announced its plans to move to Harlem River Yards in 2012. The company planned to invest $112 million of its own capital with roughly $130 million in tax breaks and grants from the borough, city and state, claiming the project would create up to 1,000 permanent jobs, with targeted hiring for Bronx residents. It had recently expanded its delivery service to the borough and launched a pilot program that allows some Bronx customers to pay with food stamps.In response to the announced deal, some community members expressed concerns about the use of public monies to subsidize a multi-million-dollar private enterprise and the potentially negative environmental impacts of the move on the Mott Haven area in the South Bronx, and alleged that FreshDirect and the city failed to conduct a sufficient environmental review and transparent community outreach. In addition, critics argued that FreshDirect's claim of future job creation was simply a promise, not backed by any legally binding agreement to create jobs. South Bronx Unite, a coalition of Bronx community organizations, businesses, and residents, attempted to stop the relocation by filing a lawsuit and initiating a boycott campaign.
During Hurricane Sandy, approximately 60 of the company's delivery trucks were damaged, and the company used the proposed construction site to store the damaged vehicles. The decision further outraged locals, with one Bronx resident claiming that FreshDirect "feel that our waterfront is a junkyard."
Locally elected representatives, among them council members María del Carmen Arroyo and Melissa Mark-Viverito, New York State Senator José M. Serrano, US Congressman José E. Serrano, Comptroller Liu and then-NYC Public Advocate Bill de Blasio, publicly came out against the proposed move. In an audit, then-comptroller John Liu supported the group's claims by stating that EDC subsidizes "empty job promises." Mr. Liu, who was campaigning for New York City mayor at the time, also told the press that FreshDirect was holding the city 'hostage' with the proposed move. In November 2012, Gristede's supermarket owner John Catsimatidis, the New York Association of Grocery Stores, the National Supermarket Association and the Bodega Association announced that they were joining the opposition, claiming that FreshDirect was receiving unfair benefits from the city. Both during his primary campaign for NYC mayor, and after winning the candidacy of the Democratic party, then-NYC Public Advocate Bill de Blasio, repeatedly criticized Fresh Direct's proposed relocation to the South Bronx.
In June 2013, a New York Supreme Court judge threw out the lawsuit against FreshDirect's move, finding that the city's environmental review was "based on a thorough review of all areas of relevant concern." South Bronx Unite, joined by the Natural Resources Defense Council and Latino Pastoral Action Center, filed an appeal in late 2013, but their appeal was dismissed in March 2014. South Bronx Unite also organized protests against the move, including a demonstration at the Harlem River Yards on March 22, 2014 which resulted in the arrests of nine protesters. These legal challenges and protests ultimately failed to stop the move, with FreshDirect breaking ground for its new facility in December 2014.
2018 reliability problems
By 2018, four years after the new facility's groundbreaking, FreshDirect's new 400,000 square foot warehouse in the Southern Bronx, with 9 miles of conveyors, was having reliability problems that were costing the company market share.While what the New York Times called "Stages a Comeback" didn't bring back 2017's 66% share of market, FreshDirect was still holding a 46% share, more than double that of the next largest competing firm.