FreshDirect: Ready To Deliver
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IT'S 5:30 A.M. at FreshDirect's warehouse and headquarters in Long Island City, N.Y. It's 40 degrees outside and 38 degrees inside.
Butchers are slicing, dicing and packaging fresh meats in
what is essentially a 300,000-square-foot refrigerator, getting
orders ready for the online grocer's 73,000 active customers
in New York City. Other workers are packing boxes of dry
goods and preparing greens.
"Greens" as in apples, peppers, lettuce-and green, insulated
plastic crates adorned with the logo of a company called Webvan.
Webvan? Yes, Webvan-the dot-com delivery service that
ran up a deficit of $830 million in little more than five years
before flaming out.
FreshDirect founder (and, until recently, chief executive
officer) Joe Fedele bought the crates for eight cents on the
dollar in 2001, along with ovens, fryers, kettles and even "one
or two" trucks from Webvan as it was beginning to liquidate.
His goal: "To acquire assets as cheaply as possible and make
something out of them," he says.
Fedele hopes buying on the cheap will help FreshDirect
avoid Webvan's fate. In fact, Fedele says FreshDirect turned
profitable last month, just 16 months after its September
2002 launch.
Where Webvan planned to roll out rapidly into 26 markets,
FreshDirect has concentrated solely on New York City. Where
Webvan planned to raise billions to bankroll its ambition, Fresh-
Direct is content with about $100 million in venture capital.
And where Webvan invested heavily in state-of-the-art automated
warehouses to handle 500,000 different products
with little human intervention, FreshDirect's points of differentiation
are cooks, butchers and the like who personally
prepare fresh meat, deli and seafood orders for customers.
There is automation at FreshDirect's single distribution center,
but only in the background.
Indeed, where Webvan relied heavily on developing its own
software and systems to deliver "competitive advantage," Fresh-
Direct has not. The company's strategy is to buy applications
off the shelf where it can, customize where it has to and scrimp
on areas that don't have a direct impact on its business.
For starters, FreshDirect chose SAP's widely used R/3 software for coordinating its warehouse and distribution efforts. Even then, FreshDirect didn't buy all parts of the R/3 system-
just those components that allowed it to track inventory, compile
financial reports and tag beef, lettuce and other products
to fulfill customers' orders.
Not that FreshDirect hasn't stumbled technologically.
Initially, FreshDirect hired Blue Martini Software in 2001 to
build an "intelligent" Web site that would enable customers to
create shopping lists and place orders. But Fedele says that
after a "few million" dollars and a year of development were
spent on the effort, the company gave up and wound up suing
Blue Martini, believing its software didn't live up to its promise.
Executives of Blue Martini declined to comment.
In 2003, FreshDirect switched to BEA Systems' Weblogic
platform, in its effort to keep track of customer preferences
as precise as the ripeness of tomatoes or the desired weight of
meat cuts. Even with the change in vendor, the site occasionally
crashes under the strain of too much traffic.
Orders also can get bogged down because FreshDirect's
SAP system pulls information from the Web site in batches,
not as each order is placed. In fact, some information it has
collected about customer preferences and the costs of delivering
goods is hard to locate, because its disparate components
don't exchange data as readily as Fedele would like.
But FreshDirect nonetheless has to thank Webvan for improving
its chances at success, beyond the low cost of its green
crates. Like Webvan, FreshDirect uses automated carousels
and conveyors to bring orders and totes to food-prep workers
and packers. It's almost routine technology today because
many delivery companies adopted Webvan's approach to conveyor
systems, says James Tenser, principal of VSN Strategies,
a Tuscon, Ariz.-based consulting firm specializing in retail.
Merely surviving where others failed, however, is no longer
good enough for FreshDirect. Fedele says the company's second
and third years will be focused on tracking metrics such
as profit margins by product, bugs per production line, accuracy
of orders and delivery cost per order, as it adds more than
2,500 customers a week.
These statistics can be culled from FreshDirect's SAP system,
but reports aren't available until two hours after data is
collected. The goal, instead, is to display current results around
the clock, to analyze and address wasted effort and save time.
To keep things simple, FreshDirect is trying to perfect the
operations of its single distribution facility before expanding
further. It is staking its reputation on the freshness of the perishable
foods it delivers into Manhattan, through the Midtown
Tunnel, which connects the western end of Long Island
to the city's richest borough.
That means personal, not just automated, attention to detail.
"This industry requires tremendous micromanagement,"
says Fedele."Food is a discriminating purchase."
FreshDirect's advantage is its ability to cut out middlemen,
says Fedele, who also co-founded the Fairway Market, an upscale
grocer in Manhattan. FreshDirect cuts its own meat
from whole carcasses, roasts its own coffee, develops its own
relationships with seafood suppliers and inspects every piece
of produce that comes through its doors.
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