FreshDirect

FreshDirect is an online grocery delivery service in the United States. Initially established in New York City, the company expanded to include much of the New York Metropolitan area as well as select counties in New Jersey, Connecticut, Pennsylvania, Delaware and the Washington, DC metro area. FreshDirect custom-packages groceries and meals for its customers using just-in-time manufacturing, a practice that reduces waste, and improves quality and freshness. The company offers its services via a website and mobile app.
The company was an early proponent of the move towards food sustainability and rapidly grew in popularity by catering to an urban, socially-conscious consumer. FreshDirect focuses on reducing the time it takes for food to move from its source to the end user by buying directly from farms, emphasizing organic food and locally grown items. FreshDirect also stocks and delivers numerous kosher foods and is recognized by the Marine Stewardship Council as a certified sustainable seafood vendor.
History.
1999-2012: 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. At the time, the concept of an online grocer had already been attempted, most notably by Webvan which "flamed out...having spent almost $1 billion" in their attempt to create a supply chain and distribution system that could scale.
Introduced to the New York market in 2002, FreshDirect's business grew popular for its convenience, fresh food and comparatively lower prices than many Manhattan supermarkets although about 10% more elsewhere. Fedele initially served as CEO until his departure in 2004. Ackerman, who had been serving as CFO, took over day to day responsibilities along with Dean Furbush, the COO. At the time, the company was generating $2 million in weekly sales.
Richard Braddock.
In 2005, Richard Braddock was named as chairman of FreshDirect. Braddock had significant experience leading e-commerce companies, having led Priceline from 1998 to 2004. Braddock took on the role of CEO in March 2005. Some speculated that Braddock's hire signaled a move towards an initial public offering.
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."
In a sudden move, Peter Ackerman, who held the majority of shares of the company, called Braddock in February 2011 complaining that the date of the board meeting had been changed without his notice. Two days later, the board fired Braddock, who did not receive severance and lost his $6.5 million investment in the business. Three weeks later, Ackerman installed his nephew, Jason Ackerman, as CEO, Braddock sued the company in July 2012. In legal filings, Peter Ackerman claims that the board had already agreed to seek a new CEO and that he was exercising his right as majority shareholder to dismiss directors.
Morrisons investment.
In 2011, UK retailer Wm 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. In August 2016, Morrisons sold their 10% stake in FreshDirect for $58 million (£45 million).
Regional expansion of services.
FreshDirect 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.
2013-2020: Move to Bronx, Market Expansion, Acquisition.
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.
in 2014 the company broke ground on a distribution hub and corporate headquarters at Harlem River Yards in the Bronx. The new facility was forecast to expand the company's operations capacity and create 1,000 additional jobs.
In 2016 the company secured $189 million in outside funding at a valuation of $600 million. At the time it was the biggest round of fund-raising in the company’s 17-year history. The investment was led by J.P. Morgan Asset Management, with W Capital and AARP Innovation Fund investing as well. In conjunction with the investment, two JPMorgan executives joined the company’s board. That same year the company expanded through the launch of FoodKick, an on-demand grocery delivery service providing a selection of essential food items and alcohol within one-hour.
Early in 2017, FreshDirect, along with Amazon and other online grocery companies, began a two-year pilot program with the US Department of Agriculture. The program was designed to extend online delivery to low-income customers by accepting payment through the Supplemental Nutrition Assistance Program (SNAP). As part of the program, customers could only use SNAP to pay for eligible items, not service or delivery fees.
The company expanded its geographical footprint in March 2017 to include delivery to Washington, DC and the surrounding towns of Arlington and McLean, Virginia, and Bethesda, Maryland. Prior to the expansion, FreshDirect had maintained a warehouse in Prince George’s County, Maryland. At the of the announcement, the company pledged to deliver food from its source directly to a customer’s home in five days, which was roughly half the time of traditional supermarkets. As part of the expansion, the company began carrying a selection of regional foods including shellfish from the Chesapeake Bay, beef from Maryland, and chicken from the nearby Shenandoah Valley. About 50 additional employees were hired.
In July 2018, the company formally opened its administrative and warehouse center in the Bronx. The event was attended by local political leaders as well as New York Senator Senator Chuck Schumer. At the same time, FreshDirect experienced a number of reliability problems that damaged its reputation and cost the company market share. Many of these problems were traced back to issues within the Bronx warehouse. 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.
Just months later, in September 2018, co-founder and CEO Jason Ackerman suddenly resigned. David McInerney was named as Ackerman's replacement and was added to the board of directors.
As of 2019, FreshDirect held 68% of the online grocery delivery market share in New York City. Other competitors included Instacart (13%), Peapod (9%) and Amazon Fresh (9%).
David McInerney.
Before being named as CEO, David McInerney was among the original co-founders of FreshDirect. He had previously served as FreshDirect’s chief merchandising officer, leading the company’s food sourcing and marketing efforts. He regularly traveled internationally in search of new products and held the official title of “Chief Food Adventurer." McInerney initially joined FreshDirect as a chef, creating the kitchen, bakery, and pastry operations in 2000. Prior to co-founding FreshDirect, McInerney was executive chef at two well known New York restaurants, One if By Land, Two if By Sea and Raphael. A graduate of the Culinary Institute of America at Hyde Park, McInerney had worked in the kitchens of noted chefs including Bernard Loiseau and David Bouley early in his career. Under McInerney’s guidance, FreshDirect developed unique relationships with suppliers to move food quickly from its source to the customer. One such effort for seafood was the Montauk Dayboat Fishing Program which launched in 2004 through a partnership with a fish market in Montauk, NY.
Acquisition.
In the fall of 2020, Netherlands-based food retailer Ahold Delhaize announced their intention to acquire a controlling interest in the company. Centerbridge Partners, a private equity firm, will hold 20% of FreshDirect which will retain its brand identity and continue to operate its Bronx warehouse and headquarters.
Operations and technology.
Ordering, Picking and Packing.
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.
Originally, orders placed through the website were 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 were 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 were scanned and gathered in corrugated fiberboard boxes. The boxes were labeled, recorded and loaded into refrigerated delivery trucks. Other software optimizes for how much is going where.
From 1999 through 2018, the company’s base of operations was a warehouse and administrative building in Long Island City, New York. 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.
Bronx Warehouse.
The company’s move to The Bronx in 2018 allowed for the implementation of a number of system improvements to enhance the quality and efficiency of food deliveries. At 400,000 square-feet, The Bronx distribution center is significantly larger than the prior facility, allowing for individually temperature-controlled areas for meat, seafood, produce, deli, bakery and prepared food items. The facility also houses 15 different temperature zones including a specific freezer room for premium ice cream, and refrigerated rooms for bananas, tomatoes and onions. Personal shoppers work daily with the same 20 to 30 fresh products. An internal quality-control app monitors, tracks and shares ratings of every fresh item. Beginning in 2018, the company eliminated use of cardboard boxes and transitioned to a 100% recyclable woven bag for deliveries, saving more than 10 million cardboard boxes annually.
Conveyor belts in the warehouse run for almost nine miles (15 km) throughout the packaging area. A bin will typically travel for 25 to 30 minutes on a conveyor belt during the picking and packing process. The Bronx distribution hub is equivalent in size to 50 grocery stores, allowing for greater efficiency when reallocating perishable items to local food relief partners including City Harvest and the Food Bank for New York City.
Truck fleet and Deliveries.
FreshDirect maintains a fleet of more than 300 vehicles ranging in size from box trucks to tractor trailers. Many of the company's vehicles are outfitted with custom features including frozen zones, special shelving for grocery orders and tri-fold rear doors with steps on the rear platforms. The company uses a system on its trucks that includes GPS, safety warnings, notifications and alerts. These system monitor the way trucks are driven to ensure that drivers are operating safely and limiting product damage.
The fleet uses multiple forms of fuel, including electric, biodiesel and CNG. In 2015, the company was cited by the US Environmental Protection Agency for its efforts to significantly reduce diesel emissions and promote clean transportation in the Northeast.
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.
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 (ICE) 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 plans in 2012 to move to Harlem River Yards, in The Bronx. 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.
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.
Philanthropy and response to COVID-19.
In February 2020, FreshDirect announced a relationship with New York-based Common Pantry, a regional non-profit organization focused on reducing hunger. In the first few months of the relationship, FreshDirect customers donated more than $1 million the organization. In September, the company announced that Common Pantry would also receive office space as part of the relationship.
In March, company CEO David McInerney announced a partnership with all five New York City borough presidents to launch a citywide initiative to deliver food to families impacted by the global pandemic.
In direct response to the COVID-19 outbreak, FreshDirect experienced a 50% increase in new customers. This sudden demand led the company to significantly increase the number of delivery timeslots, add capacity throughout the New York areas, and expand delivery to the Hamptons on Long Island and the New Jersey Shore. The company also re-launched FoodKick as FreshDirect Express, providing two-hour food delivery to Manhattan, Brooklyn, and parts of Queens.