Over the last decade, FreshDirect has become the best known grocery-delivery brand in New York City. It may lose that title very soon.
As Re/code reported last month, Amazon is preparing to start delivering fresh groceries in New York City as early as this month. With Amazon's arrival, FreshDirect will face its most formidable opponent in its 15-year history.
How does it feel about the imminent arrival of the country's most-feared online retailer? That depends on whether you're watching its actions or listening to its words. Its actions will tell you that it is certainly feeling Amazon's encroaching footsteps. After Re/code broke news of Amazon's arrival last Friday afternoon, a FreshDirect rep contacted me the next business day to set up an interview with FreshDirect CEO Jason Ackerman. This invitation was the first of its kind in my 17 months on the job.
Its words tell a different story. When I got Ackerman on the phone, he insisted his company is not worried about the arrival of that little Seattle-based company that sells books and just about anything else under the sun.
"Food is a very different business," Ackerman told me. "We know that the retailer can meaningfully affect the product itself and in this business we compete on quality of food."
Ackerman said FreshDirect's close relationship with food suppliers helps it work out exclusive offerings and monitor the food that it delivers to customer doors.
"We're on the farm spec-ing product, they are growing things for us specifically," he said. "We're not about being a delivery business; we're about being a great food business and great tech business."
That business — which delivers groceries to parts of New Jersey, Connecticut, Delaware and Pennsylvania in addition to New York — generates between $400 million to $500 million a year in annual sales, according to industry sources. But 15 years after its founding, FreshDirect still services a relatively small geographic area in the northeast region of the U.S. The company says its focus on quality is a big reason why it has taken a conservative approach to expansion. Look at what happened to Webvan, which was founded about the same time but expanded rapidly and imploded.
At the same time, many in the industry believe FreshDirect's cautious approach has opened up opportunities for upstarts in recent years. Instacart, a startup which delivers groceries to customers straight from stores like Whole Foods and Costco, is currently operating in at least 17 markets across the country. Then there's Amazon's Fresh service, which launched seven years ago in Seattle and has since expanded into major metro areas in California and is nearing its east coast launch.
FreshDirect certainly has advantages on the east coast, including a well-known brand, the logistical experience of delivering groceries in New York City and strong relationships with food suppliers. But Amazon Fresh may be too convenient to pass up for people already accustomed to turning to the online retailer for just about everything else delivered either on the same or next day. That assumes that more people are willing to cough up $299 a year for an upgraded Prime membership, called Prime Fresh, that Amazon has been requiring California Fresh customers to sign up for.
Ackerman, for his part, says grocery delivery is not a winner take-all market, especially since it currently makes up only a tiny fraction of the overall $600 billion grocery market in this country.
"It's at such an early stage of overall adoption and it's also the largest retail market that exists," he said. "There's plenty of room for a variety of different players."
Still, FreshDirect is thinking about how it can keep that competitive advantage as Amazon starts marketing its Fresh service to its big New York customer base. Adding same-day delivery would keep it competitive with Amazon and Instacart. Ackerman did not rule it out, but also did not say it is considering the option.
Sources have also told Re/code that FreshDirect has considered opening physical stores that would potentially serve as pick-up locations or places where customers could purchase prepared meals or both. The company said it has nothing to announce "yet."