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15 Fresh Direct Essay

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Teaching Notes
FRESHDIRECT, AS OF OCTOBER, 2004

Case Uses & Objectives

The FreshDirect case presents a strategy analysis and formulation problem in an entrepreneurial e-business environment. It provides students with a case that contains all the elements necessary to lead them through a course overview in a practical real-world setting. This case can be used to augment discussions of strategic analysis, specifically both internal and external environmental analysis (Chapters 2 & 3 in Dess, Lumpkin & Eisner); and strategic formulation, specifically business level strategy (Chapter 5), and e-business (Chapter 8), with an additional focus on strategic implementation, specifically entrepreneurial development (Chapters 12 & 13).

The case moves students towards two specific questions. First, there is the question of how FreshDirect has used industry analysis to examine their industry’s general environment plus the competitive impact of suppliers, buyers, threats of new entry, substitutes and rivalry. Second, based on this strategic analysis, is an assessment of FreshDirect’s choice of a competitive e-business strategy: 1) differentiation within the grocery industry based on service quality, and 2) cost leadership in their warehouse operations. Overlaying these basic questions is the nature of the entrepreneurial environment and to what degree the FreshDirect owners are capitalizing on their resources, expertise and entrepreneurial ambition.

The case is written in a style that overviews the situation but intentionally avoids guiding students through any analytical framework or specific application question. In so doing, it provides the instructor with the latitude to adjust class discussion and thereby accommodate the abilities of a wide-range of students. Specifically, the instructor can invite students to reason through a situation where uncertainty exists and speculation may be required.

In terms of environmental analysis, this case connects a discussion of external environmental forces and Porter’s five-force model, and how such forces affect the opportunities for growth in an industry (referencing concepts covered in Chapter 2). In terms of internal analysis of the firm, (referencing Chapter 3), the value-chain and resource-based VRIN analysis provides a case for how distribution challenges across the value-chain activities could affect value.

As a business-level strategy case, (referencing concepts covered in Chapter 5), this case is very well suited to discuss the Porter’s generic strategies, the advantages and disadvantages of those strategies and to discuss the merits and demerits of a combination e-business strategy (referencing concepts from Chapter 8).

Specific to the entrepreneurial challenges, the instructor also has the latitude to discuss the prospects and problems that the firm would encounter in future in its growth endeavor. This could involve a discussion on the various avenues of growth, the feasibility of the avenues, possible competitor reaction and how the company could cope with it. This case can be used to demonstrate the difficulty of introducing a new product to an already established market, the challenges of being a new player in a new market, and the challenges of expansion for a specialized product. The instructor is free to choose the concepts to highlight from Chapters 12 and 13.

Synopsis

First launched in July 2001, FreshDirect is a New York City based on-line grocery store with a state of the art production center, top-notch personnel, leading edge manufacturing software, the highest standard of cleanliness, health & safety, and an informative and user-friendly website. System efficiencies include: a cost-effective operational design; no middleman; a central production and distribution location; well designed order and delivery protocols; and a policy of no slotting allowances. These system characteristics enable FreshDirect to maintain a high product quality while keeping product prices low, therefore their promise to grocery shoppers of “higher quality at lower prices.”

The ideal FreshDirect customer is described by Jason Ackerman, one of the founders, as someone who buys their bulk staples from a warehouse like Costco on a monthly basis, and buys everything else from FreshDirect on a weekly basis. The website offers a broad selection of products along with information about the food and how it is sold. Products can be compared on taste, price, usage and nutritional information. Custom cuts a...

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Keywords

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