The Threat Of Substitute Products And Services Marketing Essay

FreshDirect is the taking on-line grocer, who serves more than 300 nothing codifications in Manhattan, Queens, Brooklyn, Nassua County, Riverdale, Westchester, Staten Island, New Jersey, and some countries of Connecticut, and they are supplying a new manner to shop for nutrient. They are based in a 300,000-square-foot production edifice in Long Island City and they are the largest employers in the metropolis.

Joseph Fedele and Jason Ackerman cofounded FreshDirect in July 2001. Before FreshDirect was established, most other on-line food market concerns had failed. Even with the death of on-line food market concerns for the old decennary, cofounders strongly believed that they would win in their concern as their efficient runing scheme was built to supply high quality at lower monetary values. At first, nevertheless, FreshDirect was blamed for the limited service country until it expanded its country easy. The company started to go popular by supplying high quality merchandises, such as locally grown fresh merchandises and organic nutrient at lower monetary values to local occupants and offices. Then a few old ages subsequently, people could see many refrigerated trucks of FreshDirect all over the Manhattan streets. FreshDirect has proven their efficient operating schemes, and it led to success in the on-line food market industry.

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Since FreshDirect made net incomes, there has been a motion toward this on-line food market industry, and they are confronting a few challenges. Today, FreshDirect is confronting ferocious competition from traditional retail food market, local eating houses, and other online grocers with bringing services. Peoples have systematically questioned how fresh the merchandises delivered by FreshDirect are because they have a restriction for seeing and experiencing the merchandises as an on-line grocer. Harmonizing to one article, FreshDirect spent $ 600,000 for parking tickets as portion of their operating disbursals ( Moskin, 2005 ) . In add-on to that, in 2007, the New York City authorities required a congestion charge for FreshDirect because FreshDirect has contributed to traffic jam, and the increasing gas monetary values are adding to their bringing disbursals.

One major challenge for FreshDirect is environmental issues. Peoples complain about their idleness bringing trucks which are lending to extra fumes exhausts and taking parking infinites. Another environmental issue is utilizing excessively many unlifelike boxes. Their pick of which vicinities to present to is related to accused favoritism, and they have faced brotherhood related jobs for unjust rewards.


SWOT Analysis

One analytical model that can be used for the internal and external environment of FreshDirect is SWOT analysis. The analysis of the FreshDirect issues will be broken down into “ strengths, failings, chances, and menaces ” ( Dess, Lumpkin, Eisner & A ; McNamara, 2012 ) .


Their broad picks of merchandises with high-quality information on the nutrients that were sold

Low operating disbursals due to non leasing expensive retail infinite.

FreshDirect ‘s efficient supply concatenation with no jobber.

Low-cost selling attack

Cost-efficient runing scheme of FreshDirect for their production installation.

Highly high criterions for safety, wellness, and cleanliness in all countries.

Strong partnerships with well-known chefs and eating houses in Manhattan

Overall, FreshDirect has tonss of strengths that are superior to rivals. They have provided assorted merchandises to choose with high quality at low cost on their well-designed web site with high-quality information on the nutrients which are sold. With no retail location, they have lower operating disbursals, ensuing in more net grosss relative to traditional retail food market concerns. Rather than holding the jobber, they order all fresh merchandises from single providers and present straight to their clients. The less mediators between the distribution channel, the less the merchandise costs. This allows FreshDirect to supply their high-quality goods at lower costs. They have adopted a low-priced selling attack by utilizing a recommendation-based run from existent clients, which increases the credibleness among new and bing clients. Their production installation is located near to their Manhattan client base with 12 separate temperature zones and an SAP fabrication package system, which have kept the best status of their merchandises at the optimum temperature. High criterion for cleanliness leads to high quality merchandises. Strong partnershisp have enhanced the quality and gustatory sensation of the four-minute repast.


Limited choice of dry goods and packaged goods

High dependance on the gross revenues of spoilables

Changeless alteration in senior direction with short footings

Highly monetary value sensitiveness of consumers

Using excessively many non-eco-friendly unlifelike boxes with no returning system for recycling.

Serving merely selected countries around New York with no farther market enlargement scheme.

FreshDirect has many failings where they might be inferior to rivals. FreshDirect has few trade names and sorts of dry goods and packaged goods relative to other rivals. For case, has focused on dry goods and is increasing its market portion due to its bing client base and better client service. FreshDirect extremely depends on the gross revenues of spoilables, which leads to high bringing costs and the other operating disbursals related to maintaining spoilables in good status. Changeless alteration in Senior Management can ensue in diminishing the house ‘s values because it increases the house ‘s hazards. Different CEOs pursued different operating schemes. It will do investors and clients to fall into confusion for their existing clients. One failing with FreshDirect is that clients are extremely monetary value medium when they purchase their merchandises because clients tend to pay no extra fees for on-line grocers and place bringing services. The more monetary value sensitive their clients are, the more FreshDirect will lose their clients. FreshDirect will hold less net grosss as they decided to go on making their concern because they need to cut their monetary values below to hold monetary value fight. As people become more concerned about the environment, the composition board boxes of FreshDirect go one chief failing. The non-eco-friendly boxes for erstwhile delivering are excessively uneconomical and there is no return system in FreshDirect for recycling. FreshDirect serves merely limited countries with no farther market enlargement scheme. Other rivals, particularly NetGrocer, cover more countries with the same bringing services as FreshDirect provides.


Market enlargement by utilizing their reputable name and image domestically and internationally, such as the house, Ford and eBay of the old instances.

Diversifying their merchandises into un-perishable merchandises.

Developing eco-friendly and safe bringing and packaging ways, or open a return centre for the composition board boxes for recycling.

Aggressive merge and acquisition with other planetary food market retail merchants, like eBay did with other top planetary auction web sites.

FreshDirect has many chances to get the better of their failings. Even with bad market conditions when they started making their concern, they succeeded in this industry, and have earned a good repute and image among their clients and in New York City. By utilizing their repute and image, they can spread out their operation domestically and internationally. European and Asiatic markets are so wide that they can spread out into the market and do more grosss. FreshDirect can vie with their challengers more expeditiously if they diversify their bringing merchandises into more un-perishable merchandises. With the increasing environmental concerns, FreshDirect needs to develop eco-friendly bringing methods, or open a return centre for the composition board boxes for recycling. At first, they will be required to pass more, but as they operate farther, they would do better image than rivals and eventually it would take to more profts. FreshDirect can see aggressive amalgamations and acquisition with other taking planetary food market retail merchants. It would let FreshDirect to spread out and increase their market portion in the on-line food market industry.


Fierce competition in the on-line food market industry.

Increased cost parking tickets as portion of operating disbursals, lifting cost of fuel, and a congestion charge proposed by New York City authorities.

Labor challenges such as truck drivers fall ining workers brotherhoods due to unjust rewards, working overtime, and probe of in-migration position.

Today, FreshDirect face menaces in the market. Since FreshDirect succeeded in this industry, many challengers came to the market and competed ferociously with each other. For case, Whole Foods has threatened their market portions in Manhattan with the same focal point, organic wellness nutrient. is the most geographical challenger in the New York City with a bulk-buying scheme which makes place bringing services. Increased cost parking tickets, lifting cost of fuel, and a congestion charge proposed by New York City authorities all has presently threatened FreshDirect. As mentioned above, FreshDirect spent $ 600,000 for the parking tickets and to boot, in 2007, New York City authorities required a congestion charge for FreshDirect, and the increasing gas monetary values are adding to their bringing disbursals. All these status would non let them to make their mark net incomes and market portions. The increasing gas costs are adding to orders and they will lose their monetary value competiveness with other rivals, and besides likely could non maintain their promise, higher quality at lower monetary values. Lower rewards, high-cost wellness benefit premiums, and probe of in-migration position led to fall ining workers brotherhood and it has threatened FreshDirect. Further, it mad the negative effects on their image and might ensue in losing the bing clients to other rivals and doing less grosss.

Porter ‘s Five-Forces Model Analysis

This analytical theoretical account that will be examined for the external environment of FreshDirect is Porter ‘s Five-Forces Model of Industry Competition. A This analysis of the FreshDirect competitory environment and issues will be broken down into “ the menace of new entrants, the bargaining power of purchasers, the bargaining power of providers, the menace of replacement merchandises and services, and the strength of competition among rivals in an industry ” ( Dess, Lumpkin, Eisner & A ; McNamara, 2012 ) .

The menace of new entrants

In this FreshDirect instance, the menace of new entry is really low. The on-line food market industry continues to maturate. Maturity phase is characterized by really few chances and new entrants. One major beginning of entry barriers, capital demand, makes it hard for new entrants to come in this industry. High start-up costs, runing disbursals, big fiscal investing for a state-of-the art production installation, and an efficient fabrication package system are required in the on-line food market retail industry. This overall low entrant menace has positively affected FreshDirect ‘s gross revenues.

The bargaining power of purchasers

The bargaining power of purchasers is of import in analysing the FreshDirect instance. This instance states that purchasers are really monetary value medium, and the monetary values for most on-line food market merchandises are above local market monetary values. Buyers tend non to pay more costs for place bringing service. A purchaser group is powerful in this instance because the purchasers have few shift costs. For illustration, if the client of FreshDirect thinks the monetary value of merchandises offered by them is expensive, the client can exchange to other rivals such as YourGrocer, Peopod, or NetGrocer really easy with no other costs. Therefore, purchasers have a powerful ability to coerce the monetary values down. This status has negatively affected the net borders of FreshDirect.

The bargaining power of providers

The bargaining power of providers is besides important in measuring the FreshDirect instance. The key for success to FreshDirect in this industry is supplying high quality merchandises at lower costs. They are runing under a alone operating scheme in the industry by offering the premium picks and the standardized cuts made by their clients. They eliminated the jobber between providers and FreshDirect. All high quality merchandises ordered by their clients are shipped to FreshDirect straight, and this system allows FreshDirect to coerce down the monetary values from their providers. In this instance, the bargaining power of providers for FreshDirect is non powerful because their provider ‘s quality merchandises is of import to their concern, but there are assorted of replacements to exchange to with no costs. Therefore, they can supply such high quality points at lower costs, and this has positively affected the net grosss of FreshDirect.

The menace of replacement merchandises and services

All houses in the same industry have the hazard for the menace of replacement merchandises and services. However, the menace of replacement merchandises and services for FreshDirect is so low relation to other industries. FreshDirect have a comparative advantage, offering high quality at lower costs by extinguishing the jobber. They provided about 5,000 perishable and organic merchandises from local providers. With 12 separate temperature zones and an SAP fabrication package system, all merchandises are under the best status. There are no replacements in the market to offer high-quality of perishable goods with the same degree of efficient direction system that FreshDirect has used. Customers could non happen a replacement for FreshDirect that meets their demands, and could non exchange to other merchandises. They have earned good repute and trueness from local countries. This limited menace of replacement merchandises and services has affected the gaining powers of FreshDirect positively.

The strength of competition among rivals in an industry

FreshDirect is faced with comparatively low intense competition among rivals in the industry. Some interacting factors prove this. The on-line food market industry makes net incomes rapidly, and Braddock expected that “ the on-line food market gross revenues will increase up to more than 20 per centum of entire food market gross revenues within following 10 old ages ” ( Dess, Lumpkin, Eisner & A ; McNamara, 2012 ) . This leads to advantages over rivals in the industry. Low issue barriers besides show low intense competition. The houses with deficient borders will go forth the markets, and it will ensue in more grosss for the other houses in the markets. This low intense competition among rivals in the industry has a positive consequence for FreshDirect with more net incomes.

Porter ‘s Value-chain analysis

This analytical theoretical account that will be used for the value-creating activities of FreshDirect is Porter ‘s Value Chain Analysis. This analysis will be divided into two different activities, “ five primary activities and support activities ” ( Dess, Lumpkin, Eisner & A ; McNamara, 2012 ) .

Five primary activities

Inbound logistics FreshDirect has the unique and good relationships with their providers. The production installation controls expeditiously and keeps the high-quality of merchandises in the best conditions.

Operationss FreshDirect offers about 5,000 perishable points with high quality at lower costs. Their efficient operating system and an SAP fabrication package system cut down their operating disbursals with greater efficiency and no jobber.

Outbound logistics FreshDirect present their merchandises daily to their client ‘s place or office by FreshDirect trucks.

Selling and gross revenues FreshDirect ‘s clients are extremely satisfied with their high-quality merchandises with lower costs. Their market scheme for the bringing allows their clients to salvage their clip and store for better points handily. They besides employed a low-priced advertisement method, which is the testimonial-based run from bing clients.

Servicess FreshDirect send their refrigerated trucks to function suburban clients, and offer bringing service for picnic demands. They provide pick-up service for orders made by their clients from the processing centre. They besides offer office bringing service to concern clients in Manhattan.

Support activities

Procurement Due to the unique and good relationships with providers by using a make-to-order doctrine, FreshDirect has the ability to cut down the purchase monetary values and to increase the quality.

Technology development FreshDirect have focused on engineering development to go on their success and increase their market portions with greater efficiency. They spend tonss of money for developing new package and upgrading their web site. Their employees are extremely recommended to larn the engineering runing system.

Human resource direction FreshDirect have recruited, trained, developed, and compensated their employees good. For case, they built a state-of-the-art production centre with adept forces.

General disposal FreshDirect has the superior ability to pull off the quality of their merchandises which is a competitory advantage over other rivals. With the expert employees, they are doing big net incomes by taking the competitory advantage. For illustration, FreshDirect have teamed up with the best eating houses and chefs for the four-minute repast. They besides take

a competitory advantage of $ 100 million in fiscal investing from private investors and the State of New York.


Alternate 1: Joint ventures

FreshDirect has many options to spread out into their market which will ensue in more net incomes, and market enlargement is required when they want to turn farther. One of the options is joint ventures with taking on-line retail merchants. FreshDirect serves merely limited countries, such as Manhattan, Queens, Brooklyn, Nassua County, Riverdale, Westchester, Staten Island, New Jersey, and some countries of Connecticut. Making a concern in little and limited countries can hold a comparative advantage that allows FreshDirect to react the demands of their clients rapidly and offer higher quality and better a client service. However, functioning merely the limited figure of clients besides has a side consequence. There might be the ceiling where FreshDirect can do net incomes. Joint ventures can work out this job. For case, if FreshDirect forms a joint venture with Amazon, they can do synergy effects to increase their market portions in an on-line retail industry. Amazon has a figure of its bing loyal client base, and provides merely the choice of nonperishables. FreshDirect has an efficient production installation and package plans, and provides the choice of spoilables largely. A joint venture might enable these two companies to pool their ain advantages in order to cut down costs and increase their market portions. The synergism will ensue in more net incomes, and economic systems of graduated tables will be achieved.

Alternate 2: Franchising

Another option to spread out the net income base of FreshDirect is franchising. Franchising gives many chances such as increasing the gross base, restricting the hazard exposure that a franchisee can hold in the domestic and international markets, and bring forthing royalty income to FreshDirect. FreshDirect can put the extra income received by a franchisee in developing efficient package plans and production installations in order to supply higher-quality of merchandises at lower costs. The advantage of franchising over licensing is supervising a franchisee ‘s operation. FreshDirect can command efficaciously a franchisee so that they can do better repute and image in the industry.

Alternate 3: Implementing distinction scheme

To vie with other on-line grocers expeditiously, another option to FreshDirect is implementing distinction scheme, which focuses on supplying difference in FreshDirect ‘s merchandises by doing alone merchandises and valued by their existing and prospective clients.

FreshDirect has applied the overall cost leading scheme, which is the scheme utilizing competitory adavantages by supplying low cost merchandises in an industry through FreshDirect ‘s value concatenation. With no jobber between providers and FreshDirect, they provide high quality spoilables at lower costs to their clients. As people become more concerned about their wellness and healthy nutrient, people tend to pay more for the organic and safe nutrients. With the demands of clients, who want alone points, FreshDirect needs to implement distinction scheme in order to fulfill their clients. The senior directors of FreshDirect should carefully analyse what their clients want to buy even with higher monetary values. If FreshDirect brings something alone to the industry, it will increase gross revenues volume of FreshDirect and heighten their repute and image.


After sing all three options, the 2nd option, Franchising is recommended. Franchising will be more appropriate to increase FreshDirect ‘s values and market portions with comparatively limited hazard. The most of import concern rule is to maximise net incomes with limited beginnings. Franchising can cut down the hazard to perforate the new abroad markets. Today, FreshDirect face many challenges and issues. One chief disadvantage of FreshDirect is merely functioning the limited countries. This places a ceiling of which FreshDirect can do net incomes every bit good as restricting their potencies to turn. However, FreshDirect can spread out their markets with expeditiously supervising and commanding the quality based on their mission statement, “ High quality and lower monetary value ” . Besides, an investing in developing engineering and efficient runing installation can be financed by the extra income from the trueness fees. FreshDirect has done an unbelievable concern so far and will go on to put the criterion in the on-line food market industry. A

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