Retail Competitive Strategy – FreshDirect

Keywords: Competitive strategy, Porter generic strategies, Porter Five Forces, Business-Unit Strategies and entrepreneurial strategies, Porter Value chain, Diversification, Business management assignment Writing Service

FreshDirect – Company Overview

FreshDirect is a successful online retailer of groceries. The company has marked its position in the online retail industry through selling quality products at lower prices. The company was established in 1999, experienced expansion as well as managed to generate profits. The company’s internal operations are quite efficient; however, it does not pay enough attention to it external variables.

Company has managed to achieve operational efficiency and excellence by employing top-notch personnel, industry leading-edge software, health and safety along with effective and informative user-friendly website (FreshDirect, 2016).

Gomes et al (2014) stated that the company has been operating independently since its inception and does not conduct its business in partnership with other companies. The company business model is to direct sales to its customer and not employs the intermediary.

Company emphasis is on perishable goods, as 75% of its items are perishable compared to the industry average of 50%. The main competitors of the FreshDirect are YouGrocer, peapod and NetGrocer as all of these companies have operating online stores.

Reijnders (2014) explained that although the company has been successful, however, it has the number of challenges to overcome. The company is funded by the number of small investors along with another issue company facing is CEO successions and outsource marketing campaigns. The recent debate for environmental challenges and claims on FreshDirect is putting its social and environmental cost on the public money has raised serious concern for the company.

The estimation that online industry could grow up to 20% of online grocery market from a recent 2% in 10 years’ time, presents a lot of future opportunities for FreshDirect. In this report, we will examine the competitive strategy and business level strategies (Kneer, 2015).

Competitive strategy

Strategic management is defined as planning of activities to align resources for the achievement of organizational objectives. In other words, it involves analysis of the internal and external environment to make the strategic decision for the achievement of business goals (Gomes et al., 2014).

The generic strategies are cost leadership, differentiation and Focus. In cost leadership, company delivery the product to its customer at lowest price compare to its competitors (Porter, 2008).

Furthermore, in differentiation offer products and services to its customer, this believed unique. Finally, we have focus strategy, in either which company focus on niche segment of the market with cost or differentiation focus. However, it is important to analyze the internal and external environment to devise the competitive strategy (Wright, 2014).

Porter Five Forces

Porter five forces is a useful tool to analyze the competitive position of the company. This model is based on the concept that the five forces can analyze and determine the intensity of competition in the market along with strengths and weaknesses of the market (Porter, 1995).

The model is often used to determine the profitability of company products as well as the key segment where the company have the strength and highlight the area of weaknesses to avoid the problems. This model helps to make decision like entry to specific market-based profitability and competition (Nag, Han and Yao, 2014).

Threat on new entrant

Nag, Han and Yao (2014) explained that the industry with profitability attracts more competitors and which put pressure on the revenues as well as profits. Nonetheless, there are numbers of other factors like government policies and capital requirement is major consideration for new entrant. However, in the online retail industry, there are strong barriers present for the new entrant.

This requires large capital investments as well as strong distribution channel to outperform the competitors. Therefore, threat of new is low for FreshDirect and there is still large margin of growth exist in the industry.

Threat of Substitute

Alstete (2014) added that threat of substitute represents the substitute products available in the market. The numbers of products available in the market to substitute, this will increase the probability of customer switching to competitors. This reduces the attractiveness as well as decrease market share. In the food retail industry, it highlights the number of products available as an alternative for the items.

The more products available will likely to increase the tendency of customer switching to competitors. The FreshDirect competitors like YouGrocer is offering similar range and customer is likely substitute, therefore, the threat of substitute is high in the industry (Jennery, 2015).

Rivalry among existing competitors

The most prominent and fundamental indicator to determine the profile of the competitors is measuring the competitive rivalry. The undifferentiated products offering by the competitors reduce the competitiveness of the market. In the food retail, having the large stores and offering services at cost-effective prices is the prominent feature. Therefore, this makes the industry highly competitive and the competition among the competitors is fierce. Nonetheless, this intense competition has led to innovation to increase market share (Kneer, 2015).

Bargaining Power of Suppliers

Chan (2015) argued that bargaining power of supplier shows the price-setting power of the suppliers along with their power to show how much they can increase the price. This is determined by the number of buyers and uniqueness of their product. Furthermore, the relative size of vendor and cost of switching is an important factor in measuring the bargaining of the supplier. The supermarket has more bargaining power compared to its suppliers. Therefore, bargaining power of supplier is low.

Bargaining Power of Customers

The power of customer is dependent upon the number of customers in the market as well as the importance of the customer. The switching cost is also important factors to determine the power of the buyer. In retail, there are large numbers of customer who place number of small orders. Therefore, the bargaining power the customer is low (Kourdi, 2015).

Summary of Five Forces and FreshDirect

In summarizing the impact of five forces on FreshDirect, it shows that company is less vulnerable to new entrant and enjoy have power over their supplier. Moreover, the bargaining power of customer is low and the threat of substitute is high. Nonetheless, there is intense competition in the market between the retail companies. In summary, porter forces are fundamental in the development of strategy.

Business-Unit Strategies and entrepreneurial strategies in crowed industry

The competitive strategies of each business unit address the response to its customers. With the help of these, decision regarding scope and internal processes of the business are made.  After the development of strategy at corporate level, the strategy is more concerned with position of its products and services to gain advantage over its competitors. The decisions related to changes in consumer demand or the changes in the technologies are evaluated to achieve the overall objectives (Jennery, 2015).

In the FreshDirect, it has been successful in the implementation of the strategies devised at the higher level. The operational excellence as well as addressing the need for wide community has helped the company to generate revenues as well as customer satisfaction. Nonetheless, companies need to consider the number of challenges like environmental issues as well as the partnership with the other business. The company also needs to revisit its financial strategy to deliver the growth along with low cost of financing (Kourdi, 2015).

Entrepreneur and FreshDirect

Alstete (2014) discussed that the entrepreneur perspective employed by FreshDirect to prominent itself in the crowded industry is based on three things, which are i) Products for the customer with personalized feeling, ii) trendsetting in delivering the fresh perishable food as well as iii) paying attention to needs of customers.

The company has been successful in deploying these strategies and has managed to deliver the fresh products to the customer within the selected timeframe and according to the need of customers. For example, the company does provide services to corporate customers for delivery in the park as well as its delivery to the customer with a guarantee of freshness.

Nonetheless, the outsource marketing has not helped the company to build the relationship with their customer as well as lack the opportunities to enhance its customer life-cycle (Alstete, 2014).

Porter Value chain – Internal Resources

The porter value helps company to analyze the internal environment of the company. it shows how efficient is the company in converting the input to output. Moreover, it deals with acquisition of the resources and converts them into products through value addition. There are main components of porter value chain that involve the primary and secondary activities. The primary activities are concern with acquisition of resources i.e. inputs and then applying processes to convert them into output (Wright, 2014).

Nag, Han and Yao (2014) added that the components also look at the marketing and sale function of the company. The company has operational excellence in the components of inbound, operation and outbound logistic. However, the marketing and sales function is not very efficient for the business.  Now looking at the support activities of the company does have the problem with continuous changes in the senior management as it is naming its sixth CEO.

Diversification  

Diversification is processes of entering the new market where business is not currently present or it wants enhance its supply chain. Company has not diverse it business either related or unrelated. The company competitor ‘peapod’ has partnership with local ‘Giant foods and shop and shop’ which has resulted in reduced cost as well as flexible delivery timing for the company. Moreover, company has funded private investors and has experienced the organic growth (Gomes et al., 2014).

Nevertheless, as mention in the case study, there are more opportunities present for the companies for future growth but the growth requires additional investment. Moreover, mergers and acquisitions present the opportunities to achieve growth quickly without need to invest huge funds.

This strategy helps the company to share it risk and rewards with partners and company can achieve its objectives quickly. The company could target as local logistic company or small retail chain so the distribution advantage can be gained (Reijnders, 2015).

Strategies FreshDirect can design for competitive advantage and implementation

The company needs to address the numbers of areas to be competitive in the market. First, it should consider bringing house the marketing department. Outsource marketing services is not very successful in developing the customer relation and company is missing on communicate the CRM benefits. The personalized marketing is an important aspect especially company is selling the perishable product which involves the fresh foods. Furthermore, the company should try to get the company listed on the stock exchange through initial public offering (IPO).

This will provide the fresh capital for the company as well as the additional source of finance for the company. The new mix of finance will lower the cost of borrowing as well as improve the brand image of the company. As mention by the CEO, the additional funds are fundamental to provide the quality of services and growth of company. The company should look the new customer and increase the market share by capitalizing the opportunities available in the market. This present a massive business opportunity as predicted by analyst of growth up to 20% compared to 2%. The environment management program should be started to through effective strategy (Kneer, 2015).

The company should consider building an alliance with local retail to reduce the delivery cost and increase the delivery times. As the company has state of art warehouse, but delivering to areas, which are not within the reach or requires extra time could be the problem.

The perishable fresh food for the customer from the centralized location takes additional time and company needs cut the delivery time as well as the quality of food. It is evident from the case that a company competitor is working in the partnership with the local retailer.

This has led to reducing the delivery time of competitors as well as extended delivery times by Peapod. Furthermore, the company could focus is logistic systems of the company. However, their systems are very efficient compared to competitors where are falling behind as witness deliveries through FedEx. The delivery time is 3-4 days has suited to customers who required products in their own time. However, the perishable products are not impossible with such delivery system.

Conclusion

FreshDirect is a profitable company, which has managed the successful delivery of high-quality products at the lower price to its customers. Company internal resources utilization is very efficient and the company has achieved operational excellence.

However, there are numbers of areas in which company needs to address including the issue relating to top management as well as the fund’s availability for its growth.

The company has preferred organic growth and lack the joint method of expansion like acquisition or strategic alliance. The recent issue related to packaging material is the major concern as in community it has result negativism along with the creation of pressure groups.

Furthermore, the company-marketing strategy has needed attention to enhancing the customer relationship as well as the market share. The company needs to address the environmental issue through effective business-led strategy and start the program like recycle services or innovative and smart packaging.

 

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