In the context of Ch. 2 discuss the following: 1. What is the FreshDirect busine
ID: 399333 • Letter: I
Question
In the context of Ch. 2 discuss the following:
1. What is the FreshDirect business model? What are the reasons for its competitive advantage? What effect did FreshDirect have on traditional grocers operating in New York City and Why? How does its position change with non-traditional participants (like AmazonFresh!) being part of the competitive landscape?
Would a similar business work in your neighborhood? Why or why not?
What do you think this textbook’s author meant when he stated the following: discuss any two out of Q 2, 3 and 4
2. “Management has no magic bullets. There is no exhaustive list of key resources that firms can look to in order to build a sustainable business”.
3. “Technology also opens up opportunities to leverage products provided by others to create new distribution channels to reach customers”.
4. “Timing and technology alone will not yield sustainable competitive advantage”.
Explanation / Answer
What is the FreshDirect business model? What are the reasons for its competitive advantage?
The company is an online grocery retailer and they primarily focuses on the dense New York City metropolitan area. The company operates no physical stores and conducts it’s operations out of a 300,000 square foot distribution center located in Long Island City in New York.
Competitive advantages.
The whole business model is based on delivering affordable and high quality products at the door step.
The company does not run any physical store so can cater to retail and wholesale orders from a single unit.
The distribution unit is situated in densely populated area which has a potential to cater 4 million people in the radius of 10 miles. The lack of physical grocery stores is the core of the business model as it leads to less cost and transfer of benefits to the customer.
For perishable goods company maintains strong ties with local producer which helps them to ensure quality and quantity, it also leads to less transportation cost which is an added advantage.
The strategic location of their warehouse is the core competitive advantage and also the reason why company is hesitant to move out of New York.
What effect did FreshDirect have on traditional grocers operating in New York City and Why?
Independent research and analysis of Nielsen and FMI find that the consumer demand for online grocery has shown an exponential graph in recent years, which will definitely have an adverse effect on small retailers. Online grocery stores already have penetrated more than 70% of the market.
FreshDirect has exploited the fact that lives these are fast paced and consumer are not willing to waste time on grocery shopping in physical store so online grocery presents a solution.
How does its position change with non-traditional participants (like AmazonFresh!) being part of the competitive landscape?
Amazon emerged as a competitor to Fresh Direct but the business model of Amazon fresh differs from FreshDirect. AmazonFresh charges $299 annual membership fee compared to FreshDirect modest delivery fee which is charged on per order basis and also provides liberty to the customer to avail services from different providers. The core competency of FreshDirect lies in brand equity and reputation for its quality. The position of FreshDirect is strong in North East but the company has been reluctant for expansion and is already feeling a squeeze from competitors in terms of expansion, Many small competitors have expanded their businesses in meagre time.
The position of Fresh direct will remain intact due to its core competencies.
Would a similar business work in your neighborhood? Why or why not?
Such a business model is successful only in densely populated metropolitan cities where majority of adult population is engaged in earning fortunes and has least time and energy to spend on non-productive tasks. The supplies should be near and adequate to the warehouse of the company. Less overhead and delivery cost proves to be the core competitive advantage for such businesses.
“Management has no magic bullets. There is no exhaustive list of key resources that firms can look to in order to build a sustainable business”.
Very well said Management has no magic bullets, Management is art and science of strategically placing your strengths into business to achieve a common goal efficiently and effectively.
There can not be an exhaustive list of key resources which is applicable for every business, a business has its own set of strengths and weaknesses. The sustainability of business depends upon the analytical and decision making skills of top management. Efficient and effective Asset management (Human, financial, Intellectual, physical) plays the key role in sustainability of a business. Innovation and ideas too have prominent roles in contemporary business world.
“Technology also opens up opportunities to leverage products provided by others to create new distribution channels to reach customers”.
Online business models can be classified into ‘inventory based and market place business model’. Technology has provided platform for a virtual market place where small retailers or wholesalers have a fair opportunity to expand their horizon of customer base under market place model. The inventory based model will go obsolete in near future as it requires hefty investment and also impacts local players. These virtual market places has restructured the markets as well as distribution channels.
“Timing and technology alone will not yield sustainable competitive advantage”.
There are many other contributing factors for the success of a business other than timing and technology.