FreshDirect chairman Rick Braddock, 63, isn’t going to dazzle you with technology know-how, but he has a knack for using systems to make commerce a little easier.
At Citibank, where he served as president from 1990 to 1992, Braddock helped double use of the bank’s automated teller machines. As chief executive of Priceline, he brought reverse auctions to the travel business. Now he leads New York-based online grocer FreshDirect as it marches toward an initial public offering.
Experience has taught Braddock not to look at return on investment as the magic metric, because it doesn’t foretell success. Instead, Braddock focuses on sales metrics such as average order size. His take: Monitor how you’re doing with customers, and the rest will take care of itself.
Baseline news editor Larry Dignan recently spoke with Braddock about FreshDirect’s prospects and metrics.
Why does the FreshDirect model work where Webvan [an online grocer that went bankrupt] didn’t?
Look at the business model of FreshDirect. We have a 300,000-square-foot facility and buy product directly from the source, turn it around and ship it directly to customers. We get [groceries to customers] at least seven days faster than a traditional grocery store supply chain. We have no stores, so we can reduce costs and have higher margins [and can pass that] along to customers. Since the product is directly shipped, it’s higher quality and fresher. That’s the reason we exist. Webvan didn’t have that model with direct purchase and turnaround. They didn’t develop a consumer proposition and had a low average order size. They used their capital to build out their warehouse and manufacturing network around the country before they validated the proposition for the customer.
What are your best performance metrics? What’s the big number?
I’m very numeric the way I manage, but I believe you can have big problems when you pick out one big number. I think naming one metric would be a mistake as a leader. Because if I did that, it would convey that I only care about one thing. I’m 63 years old and have run businesses for 30 years, and I’ve learned that what I look at as a businessman influences the development of the people who work with me. If I take a simplistic view of the business, which one number would imply, I do a bad training job, a bad development job and a bad management job.
So what measurements are important to you?
For FreshDirect, trial and repeat customers matter. You have to get a new customer to try FreshDirect, but that doesn’t always mean he’ll become a loyal customer. So frequency matters. There’s also a set of customer service metrics you have to track. Early in a customer relationship, you have to be strong in your service delivery. In all Internet businessesand perhaps more in this oneyou need to replace a [person’s] face with reliable, high-quality service. You also have average order sizewhich is what harpooned Webvan. You have to have a nuanced view of the customer from a lot of different dimensions.
Why not focus on returns on investment and capital?
To me, those types of return metrics are lagging indicators of business performance. If you don’t get your business right from a customer perspective, you’re not going to have a fun time looking at returns on investment. In my view, the first thing to do is work the customer dimensions and then look to the ROI and similar measures. Usually when a company misses its financial metrics, it has been in decline for a while. And the reaction to fix it is usually a financial reaction when it should be to go back and look at the business proposition to the consumer to see what’s wrong.
So, the behind-the-scenes technologybar codes, manufacturing lines and distribution centersdoesn’t interest you?
I don’t consider myself good at that kind of thing. I’m more engaged strategically with technology. The kind of issue that interests me with FreshDirect, Priceline and the Internet in general is the conversation with the customer where you have a real-time relationship. The problem with most Internet applications is that there has to be a stake in the ground between a dumb applicationthe historical way people bought books, music and airline ticketsand a conversational one-on-one approach where you’re pivoting off the knowledge you gain from e-commerce transactions. Just like a credit card company, FreshDirect has a ton of information on its customers, but I’d call it data, not information, at this point.