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Online Grocery Stores on the Rise

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The Internet is fast becoming the conduit for all kinds of products and services, and over the last few years, the grocery business has been the latest conglomerate to jump on board the Internet bandwagon. For those striving for speed, quality, and more inexpensive items, online grocery stores have the traditional ones beat. It's only a matter of time until this venue becomes big business.

Only a few years back, the online grocery business had a shaky start and failed. One company called Webvan went public in 1999, attempting to reinvent the $500 billion supermarket industry, retail’s largest sector, by quickly establishing high-tech warehouses across the nation. Louis Borders, the bookstore mogul, was its founder, and former chief executive of Anderson Consulting George Shaheen was in charge of day-to-day operations. Webvan looked like it had a pretty solid start, but it didn’t draw enough customers after investing $1.2 billion in its two years of operation and had to close up shop.

Five years later, however, the idea that Webvan started began to take off. Since Webvan’s collapse, smaller figures have been picking up the reins and turning online groceries into a legitimate business. One small New York company that is opening the door to the next wave of Internet commerce is FreshDirect.



FreshDirect got started nine years ago during the same Internet explosion that created Webvan. Jason Ackerman, then 32, was working at a food-focused investment fund and looking for new business ideas. His fund managed some of the money that his uncle, Peter Ackerman, had made as Michael R. Milken’s partner during the 1980s. Jason Ackerman took a trip up to Harlem to talk with Joe Fedele, who ran a store called Fairway, which is considered the best supermarket in New York.

“This was 1999,” Ackerman recalled, “and everybody was asking, ‘What can the Internet do for me?’”

For Ackerman and Fedele the Internet offered an answer to an old problem in the food business: what’s the best way to keep food fresh? In the grocery stores themselves, vegetables, cheese, meat, and seafood have to be cut up and placed into a crowded casing and displayed under bright lights long before they will be consumed. Food can be stored under much better conditions at high-tech warehouses and then rapidly delivered when ordered online.

Thus, Ackerman and Fedele, who had left Fairway, cut the store out of the equation. $80 million was spent (much of it Peter Ackerman’s money), and on July 11, 2002, 7/11 for good luck, FreshDirect made its first delivery.

FreshDirect has developed something of a cult following in New York as more and more people have become aware that the produce, fish, and meats are of much superior quality than what’s offered at local supermarkets and are usually available at lower prices. Some apartment buildings have even installed refrigerators in their lobbies, built to FreshDirect specifications, to attract residents who want their groceries delivered during the day. FreshDirect has begun delivering to many up-and-coming neighborhoods in New York, and when one New Yorker saw a delivery man walking on her Brooklyn street, she “chased him down to confirm that, indeed, the company had begun delivering to her part of Park Slope.”

One person who did some comparison shopping had this to say:

“The prices at Food Emporium seemed to be typical for a Manhattan supermarket. And FreshDirect beat them, easily. The 10 items on my list…cost $41.18 at FreshDirect, compared with $47.19 at Food Emporium. A small bunch of scallions, for example, cost $0.99 at FreshDirect and $1.59 at the supermarket…Besides cost, I’ve found the vegetables, fruit, meat, and fish to be far better at FreshDirect than at Food Emporium…I imagine that a family doing its regular shopping at FreshDirect, rather than a Manhattan supermarket, could save [up to $50] a week. The bottom line is that this exercise made me think I should almost never shop at a regular Manhattan supermarket.”

FreshDirect is starting to corner the market in New York for online grocery shopping. Over the last four years, the company has been trying to figure out what New Yorkers want, where delivery vans get caught in traffic, and how to streamline business practices so that the customers get the very best quality of products at lower prices. FreshDirect is one example of where the grocery industry may be headed, and once again, the Internet is playing an integral part in how we live our lives.
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 matters  suggestions  customers  business strategies  supermarkets  warehouses  Internet  industry  grocery stores  New York


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