Manhattan’s FreshDirect sets the Pace in Grocery Sales Over the Internet

Food retailing, with its highly perishable inventory, is a low-profit-margin enterprise—one in which consumers tend to make multiple trips to the market each month to select and purchase first-hand. The Coronavirus pandemic escalated online grocery shopping exponentially. Data analytics firm Inmar found in a recent poll that 78.7% of respondents shopped online for groceries after the pandemic outbreak, up from 39% before. A lasting, post-Coronavirus trend has been consumer demand in ordering groceries online and picking up completed orders at special supermarket parking spots.

One of the most closely watched online grocers is FreshDirect LLC, a unique business launched in 2001. FreshDirect is an online retail grocery business serving customers in New York City and the surrounding areas. It offers fresh food and grocery items, including fruits and vegetables, meat, seafood, deli items, cheese, dairy, coffee, tea, bakery goods, pasta and frozen food as well as kosher, gluten free, local and organic produce, health and beauty items and wine. It also provides catering services and a full line of ready-to-heat meals prepared by its on-staff chefs. FreshDirect owns and operates a 300,000-square-foot state-of-the-art processing facility, which enables the company to process and ship fresh meats, produce and dairy products quickly and efficiently. The company is also sometimes able to offer lower prices than traditional retail grocers, due to the lack of the need to operate expensive retail stores. Customers can also pick up their orders at the distribution facility. The firm served select counties in New York, New Jersey, Connecticut, Pennsylvania and Delaware. FreshDirect customers have the ability to shop by lifestyle, by clicking on gluten-free, kosher, organic or other groups. Satisfaction is 100% guaranteed. In late 2020, FreshDirect was acquired by Ahold Delhaize NV, which owns a number of supermarket chains including Giant and Stop & Shop. This may lead to fast expansion for FreshDirect.

Peapod, an aggressive home grocery delivery service that has been in business since 1989, has built a base of online shoppers slowly but surely. Peapod has a presence in a number of major cities and suburban areas, including cities in Massachusetts, Virginia, Maryland, Wisconsin, Washington, D.C., Connecticut, New York, Rhode Island, Illinois, Indiana and New Jersey. Peapod entered the New York City market for the first time in 2011, where it must compete directly against FreshDirect. Customers order online via Peapod.com and, for a fee, receive home delivery of their groceries, which are packed at warehouses near participating supermarkets. Despite its lengthy history and wealth of experience, Peapod struggled financially at first. It was acquired in 2001 by one of the world’s largest supermarket chains, European-based Royal Ahold, through its Ahold USA unit. In February 2020, Ahold USA shut down the stand-alone Peapod online grocery operation in Illinois, Wisconsin and Indiana. However, the onset of the Coronavirus spurred new growth in the company, with supermarket chains Giant Food and Stop & Shop announcing the integration of Peapod’s ecommerce technology and services into their businesses in 2020.

Amazon has been getting deeper into the grocery sector for many years, both through internal development and through acquisition. In late 2014, Amazon launched Prime Now, which delivers groceries and consumer goods in as little as one to two hours. Amazon has been aggressively rolling out warehouses in major cities all over the U.S. to serve its growing Prime Now business. In late 2016, Amazon opened its first brick and mortar grocery store called Amazon Go in Seattle, Washington. The 1,800 square-foot store offers prepared foods and grocery staples and requires shoppers to scan a smartphone app linked to an Amazon account upon arrival. The app maintains a virtual cart of the items selected by the shopper and charges the related account accordingly when the shopper leaves the store, without any interaction with a human cashier. By 2023, there were 23 Amazon Go stores in the U.S. In addition, Amazon had opened 44 stores under its Amazon Fresh brand, focusing on urban grocery stores, by August 2022, in eight U.S. states and Washington D.C. However, by late 2023, the company was closing a number of its brick-and-mortar stores, including Go and Fresh locations, in order to focus more on its online grocery business.

In 2017, the firm acquired specialty supermarket firm Whole Foods Market, Inc. for $13.7 billion, sending shockwaves through the grocery industry. This is an extension of Amazon's grocery strategy. In September 2020, Whole Foods opened its first online-only store in Brooklyn, New York.

Brick and mortar grocers are scrambling to fulfill the shift in consumers’ shopping habits that was spurred by the Coronavirus. Walmart offers Walmart Grocery, a pickup and delivery service in which online orders can be picked up at store drive-through lanes, often on the same day. The firm also offers same day delivery in most U.S. markets.

Online grocery shopping is rapidly becoming commonplace at major supermarket chains, with consumers’ options ranging from ordering online and picking up curbside, to delivery to the home. For example, the massive grocery firm Kroger offers a click and collect service called ClickList in stores nationwide, including many of its subsidiary brands such as Fred Meyer and Smith’s.

Another twist on grocery shopping online is Instacart, a San Francisco-based company that models online shopping, somewhat on the same business model as Uber. Customers use an app to enter a list of groceries and other items they want, and nearby shoppers pick up the items and deliver them using their own cars, bikes or other transportation. Shoppers are independent contractors. This work may be attractive to people like students or stay-at-home parents who want to control their own schedules while making extra money. Instacart charges a delivery fee and marks up store prices for each item delivered. Demand for Instacart’s services soared during the Coronavirus pandemic. In December 2017, Target Corporation announced its $550 million acquisition of grocery delivery startup Shipt, an Instacart competitor.

Grocery delivery in China has become commonplace. Dozens of startup companies, including Quick Bee, New Dada and Dianwoda, employ couriers on electric motorbikes who pick up orders from supermarkets, convenience stores and independent shops for quick delivery. Alibaba invested nearly 1 billion yuan (roughly $150 million) on Dianwoda in 2016, and New Dada is 40% owned by JD.com. Alibaba’s Freshippo concept combines a grocery store with a restaurant and a delivery app, which together utilize robotics and facial recognition to speed logistics and payment.

SPOTLIGHT: Micro-Fulfillment Centers

The Coronavirus brought sweeping changes to the retail sector—basically a rapid restructuring of the entire sector. Retail foot traffic slumped while ecommerce soared for everything from groceries to household items to apparel. These changes have significant implications for supply chain and distribution. Since consumers frequently demand same-day (and often two-hour) availability of goods that they have ordered online, a superior level of rapid distribution may, in many cases, only be provided by creating “micro-fulfillment centers.” These centers are small, local warehousing, packing and distribution areas that may be only a few hundred square meters in size. They may be located in a special area within a retail store, or they may be free-standing facilities, often near the store. Thus, the centers are typically within dense population areas. (This is a sharp contrast to traditional fulfilment centers that typically are of massive size and often located a significant drive-time away from densely populated markets.) Micro-Fulfillment works best when coupled with systems and equipment designed especially for this purpose, and specialized robotics and related software are a great tool for this strategy.

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