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Analysis of Franchising Strategy

FreshDirect is the leading online grocer, who will serve more than 300 zip rules in Manhattan, Queens, Brooklyn, Nassua State, Riverdale, Westchester, Staten Island, NJ, and some areas of Connecticut, and they are providing a fresh way to look for food. They can be based in a 300, 000-square-foot creation building in Long Island City and they're the major employers in the city.

Joseph Fedele and Jason Ackerman cofounded FreshDirect in July 2001. Before FreshDirect was founded, almost every other online grocery businesses got failed. Even with the demise of online grocery businesses for the previous decade, cofounders highly believed that they might flourish in their business as their useful operating strategy was built to provide high quality at lower prices. At first, however, FreshDirect was blamed for the limited service area until it broadened its area gradually. The company began to become popular by giving high quality products, such as locally produced fresh products and organic food at lower prices to local residents and office buildings. Then a couple of years later, people could see many refrigerated vehicles of FreshDirect all around the Manhattan roadways. FreshDirect has proven their efficient operating strategies, and it resulted in success in the web food industry.

Since FreshDirect made earnings, there's been a movement toward this online food industry, and they are facing a few challenges. Today, FreshDirect is facing fierce competition from traditional retail grocery, local restaurants, and other online grocers with delivery services. People have constantly questioned how fresh the merchandise sent by FreshDirect are because they have a restriction for viewing and feeling the merchandise as a web based grocer. According to 1 article, FreshDirect put in $600, 000 for parking tickets within their operating bills (Moskin, 2005). Moreover, in 2007, the brand new York City government required a congestion fee for FreshDirect because FreshDirect has contributed to traffic jam, and the increasing gas prices are adding to their delivery expenditures.

One major challenge for FreshDirect is environmental issues. People complain about their idling delivery vehicles which are adding to additional exhaust fumes and taking parking places. Another environmental concern is using way too many cardboard containers. Their selection of which neighborhoods to provide to is related to accused discrimination, and they have faced union related problems for unfair salary.

Analysis

SWOT Analysis

One analytical platform 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, weaknesses, opportunities, and risks" (Dess, Lumpkin, Eisner & McNamara, 2012).

Strengths

  • Their wide choices of products with high-quality home elevators the foods that were sold
  • Low operating expenses due to not booking expensive retail space.
  • FreshDirect's efficient supply chain without middleman.
  • Low-cost marketing approach
  • Cost-effective operating strategy of FreshDirect for their production center.
  • Extremely high expectations for security, health, and cleanliness in every areas.
  • Strong partnerships with well-known chefs and restaurants in Manhattan

Overall, FreshDirect has tons of strengths that are more advanced than competitors. They may have provided various products to select with high quality at low cost on their well-designed website with high-quality information on the foodstuffs which can be purchased. Without retail location, they have lower operating expenditures, leading to more net profits relative to traditional retail grocery store businesses. Instead of getting the middleman, they order all fresh products from specific suppliers and deliver right to their customers. The less intermediaries between the distribution route, the less the product costs. This enables FreshDirect to provide their high-quality goods at lower costs. They may have implemented a low-cost marketing procedure by by using a recommendation-based campaign from actual customers, which escalates the credibility among new and existing customers. Their development facility is situated near to their Manhattan customer basic with 12 split temperature areas and an SAP manufacturing software system, which have placed the best condition of their products at the optimal temperature. High standard for sanitation contributes to high quality products. Strong partnershisp have enhanced the quality and flavor of the four-minute meal.

Weaknesses

  • Limited selection of dry goods and packed goods
  • High reliance on the sales of perishables
  • Constant change in mature management with brief terms
  • Extremely price level of sensitivity of consumers
  • Using too many non-eco-friendly cardboard boxes with no coming back system for recycling.
  • Serving only preferred areas around New York without further market development strategy.

FreshDirect has many weaknesses where they might be inferior to rivals. FreshDirect has few brands and varieties of dried out goods and packaged goods in accordance with other competitors. For instance, Amazon. com has centered on dry goods and is increasing its market talk about due to its existing customer basic and better customer service. FreshDirect highly depends on the sales of perishables, which brings about high delivery costs and the other operating expenditures related to keeping perishables in good condition. Consistent change in Mature Management can bring about decreasing the firm's prices because it increases the firm's hazards. Different CEOs pursued different operating strategies. It will cause shareholders and customers to belong to confusion for their existing customers. One weakness with FreshDirect is that customers are highly price very sensitive when they purchase their products because customers have a tendency to pay no additional fees for online grocers and home delivery services. A lot more price sensitive their customers are, the greater FreshDirect will eventually lose their customers. FreshDirect will have less net earnings as they decided to continue doing their business because they need to trim their prices below to own price competitiveness. As people are more concerned about the environment, the cardboard boxes of FreshDirect become one main weakness. The non-eco-friendly boxes for one-time delivering are too wasteful and there is absolutely no go back system in FreshDirect for recycling. FreshDirect functions only limited areas without further market extension strategy. Other challengers, especially NetGrocer, cover more areas with the same delivery services as FreshDirect provides.

Opportunities

  • Market expansion by utilizing their reputable name and image domestically and internationally, such as the organization, Ford and eBay of the previous cases.
  • Diversifying their products into un-perishable products.
  • Developing eco-friendly and safe delivery and packaging ways, or open up a return middle for the cardboard containers for recycling.
  • Aggressive merge and acquisition with other global food merchants, like eBay do with other top global public sale websites.

FreshDirect has many opportunities to beat their weaknesses. Even with bad market conditions when they started out doing their business, they been successful in this industry, and have acquired a good reputation and image amongst their customers and in New York City. By using their reputation and image, they can increase their procedure domestically and internationally. European and Asian markets are so wide that they can expand into the market and make more earnings. FreshDirect can contend with their competitors more efficiently if indeed they diversify their delivery products into more un-perishable products. Using the increasing environmental concerns, FreshDirect must develop eco-friendly delivery methods, or open a return middle for the cardboard bins for recycling. Initially, they'll be required to spend more, but as they operate further, they might make smarter image than competitors and finally it could lead to more profts. FreshDirect can consider intense mergers and acquisition with other leading global grocery retailers. It would allow FreshDirect to expand and increase their market talk about in the online grocery store industry.

Threats

  • Fierce competition in the online grocery industry.
  • Increased cost car parking tickets as part of operating expenses, growing cost of gas, and a congestion demand proposed by New York City government.
  • Labor problems such as pick up truck drivers joining staff unions anticipated to unfair pay, working overtime, and investigation of immigration position.

Today, FreshDirect face dangers on the market. Since FreshDirect succeeded in this industry, many competitors came to the marketplace and competed fiercely with each other. For instance, Entire Foods has threatened their market stocks in Manhattan with the same target, organic and natural health food. YourGrocer. com is the most physical rival in the brand new York City with a bulk-buying strategy which makes home delivery services. Increased expense parking tickets, rising cost of gasoline, and a congestion fee proposed by New York City administration all has currently threatened FreshDirect. As mentioned above, FreshDirect put in $600, 000 for the car parking tickets and additionally, in 2007, NEW YORK authorities required a congestion charge for FreshDirect, and the increasing gas prices are adding to their delivery bills. All these condition would not allow them to reach their target earnings and market shares. The increasing gas costs are adding to orders and they will lose their price competiveness with other opponents, and also probably cannot keep their promise, top quality at lower prices. Lower income, high-cost health gain premiums, and investigation of immigration status led to becoming a member of personnel union and it includes threatened FreshDirect. Further, it mad the unwanted effects on the image and might result in shedding the existing customers to other competitors and making less profits.

Porter's Five-Forces Model Analysis

This analytical model that will be analyzed for the exterior environment of FreshDirect is Porter's Five-Forces Model of Industry Competition. This analysis of the FreshDirect competitive environment and issues will be divided into "the threat of new entrants, the bargaining electric power of buyers, the bargaining electric power of suppliers, the threat of alternative products and services, and the depth of rivalry among opponents in an industry" (Dess, Lumpkin, Eisner & McNamara, 2012).

The risk of new entrants

In this FreshDirect circumstance, the threat of new entry is very low. The online grocery store industry is constantly on the mature. Maturity stage is characterized by very few leads and new entrants. One major source of entry obstacles, capital requirement, makes it problematic for new entrants to go into this industry. High start-up costs, operating expenses, large financial investment for a state-of-the art development facility, and a competent developing software system are needed in the online grocery retail industry. This overall low entrant danger has positively influenced FreshDirect's sales.

The bargaining ability of buyers

The bargaining ability of potential buyers is important in studying the FreshDirect case. This case declares that buyers are very price hypersensitive, and the costs for some online grocery store products are above local market prices. Customers tend not to pay more costs for home delivery service. A buyer group is powerful in cases like this because the potential buyers have few switching costs. For instance, if the client of FreshDirect believes the price tag on products offered by them is expensive, the client can turn to other rivals such as YourGrocer, Peopod, or NetGrocer quickly with no other costs. Therefore, clients have a robust ability to power the costs down. This problem has negatively afflicted the net margins of FreshDirect.

The bargaining power of suppliers

The bargaining vitality of suppliers is also essential in evaluating the FreshDirect case. The key for success to FreshDirect in this industry offers high quality products at lower costs. They can be operating under a distinctive operating strategy in the industry by offering the high grade alternatives and the standardized cuts created by their customers. They taken away the middleman between suppliers and FreshDirect. All high quality products bought by their customers are shipped to FreshDirect immediately, which system allows FreshDirect to pressure down the costs off their suppliers. In cases like this, the bargaining electricity of suppliers for FreshDirect is not powerful because their supplier's quality products is important with their business, but there are numerous of substitutes to change to with no costs. Therefore, they can offer such high quality items at lower costs, which has positively influenced the net income of FreshDirect.

The risk of alternative products and services

All businesses in the same industry have the risk for the risk of substitute products and services. However, the risk of alternative products and services for FreshDirect is so low in accordance with other establishments. FreshDirect have a comparative advantage, offering high quality at lower costs by eliminating the middleman. They provided about 5, 000 perishable and organic and natural products from local suppliers. With 12 distinct temperature areas and an SAP processing software system, all products are under the best condition. You will discover no substitutes in the market to offer top quality of perishable goods with the same level of successful management system that FreshDirect has used. Customers cannot find an alternative for FreshDirect that matches their needs, and may not transition to other products. They may have attained good reputation and devotion from local areas. This limited risk of alternative products and services has influenced the earning capabilities of FreshDirect favorably.

The intensity of rivalry among competition in an industry

FreshDirect is confronted with relatively low strong rivalry among opponents on the market. Some interacting factors demonstrate this. The online grocery store industry makes revenue quickly, and Braddock expected that "the online grocery sales increase up to more than 20 percent of total food sales within next 10 years" (Dess, Lumpkin, Eisner & McNamara, 2012). This contributes to advantages over competition in the industry. Low exit obstacles also show low strong rivalry. The organizations with inadequate margins will leave the marketplaces, and it'll bring about more revenues for the other organizations in the markets. This low strong rivalry among competition in the industry has an optimistic result for FreshDirect with more profits.

Porter's Value-chain analysis

This analytical model 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 key activities and support activities" (Dess, Lumpkin, Eisner & McNamara, 2012).

Five major activities

Inbound logistics FreshDirect has the unique and good romantic relationships using their suppliers. The creation facility controls successfully and helps to keep the high-quality of products in the best conditions.

Operations FreshDirect offers about 5, 000 perishable items with high quality at lower costs. Their efficient operating system and an SAP creation software system reduce their operating expenses with higher efficiency and no middleman.

Outbound logistics FreshDirect deliver their products daily to their customer's home or office by FreshDirect pickup trucks.

Marketing and sales FreshDirect's customers are highly satisfied with their high-quality products with lower costs. Their market technique for the delivery allows their customers to save their time and shop for better items effortlessly. They also applied a low-cost advertising method, which is the testimonial-based marketing campaign from existing customers.

Services FreshDirect send their refrigerated pickup trucks to serve suburban customers, and offer delivery service for picnic needs. They provide pick-up service for requests made by their customers from the handling center. In addition they offer office delivery service to business customers in Manhattan.

Support activities

Procurement Due to the unique and good associations with suppliers by using a make-to-order philosophy, FreshDirect has the ability to reduce the purchase prices and improve the quality.

Technology development FreshDirect have focused on technology development to keep their success and increase their market shares with greater efficiency. They spend a lot of money for producing new software and changing their website. Their employees are strongly suggested to learn the technology operating-system.

Human source of information management FreshDirect have recruited, trained, developed, and compensated their employees well. For example, they built a state-of-the-art development middle with expert employees.

General supervision FreshDirect has the superior ability to control the quality of their products which really is a competitive benefits over other competitors. With all the expert employees, these are making large gains by taking the competitive advantages. For instance, FreshDirect have teamed up with the best restaurants and chefs for the four-minute meal. In addition they take

a competitive good thing about $100 million in financial investment from private buyers and the Talk about of NY.

Alternatives

Alternative 1: Joint ventures

FreshDirect has many options to expand into their market that may bring about more income, and market extension is required when they would like to grow further. One of the options is joint endeavors with leading trusted online retailers. FreshDirect assists only limited areas, such as Manhattan, Queens, Brooklyn, Nassua County, Riverdale, Westchester, Staten Island, NJ, and some regions of Connecticut. Doing a business in small and limited areas can have a comparative advantages that allows FreshDirect to answer the needs of their customers quickly and provide top quality and better a person service. However, offering only the limited number of customers also offers a side effect. There might be the roof where FreshDirect can make income. Joint projects can solve this issue. For example, if FreshDirect varieties a joint venture with Amazon, they can make synergy results to increase their market shares in an online retail industry. Amazon has a number of its existing dedicated customer base, and provides only selecting nonperishables. FreshDirect comes with an efficient production service and software packages, and provides the selection of perishables typically. A joint venture might enable both of these companies to pool their own advantages in order to reduce costs and increase their market stocks. The synergy will lead to more revenue, and economies of scales will be achieved.

Alternative 2: Franchising

Another option to extend the profit bottom part of FreshDirect is franchising. Franchising offers many opportunities such as increasing the earnings base, limiting the chance exposure a franchisee can have in the home and international market segments, and making royalty income to FreshDirect. FreshDirect can make investments the excess income received by a franchisee in expanding efficient software programs and creation facilities in order to provide higher-quality of products at lower costs. The good thing about franchising over licensing is monitoring a franchisee's procedure. FreshDirect can control effectively a franchisee in order to make better reputation and image on the market.

Alternative 3: Implementing differentiation strategy

To compete with other online grocers efficiently, another option to FreshDirect is implementing differentiation strategy, which focuses on providing difference in FreshDirect's products by causing unique products and valued by their existing and possible customers.

FreshDirect has applied the overall cost command strategy, which is the strategy using competitive adavantages by giving low cost products in an industry through FreshDirect's value chain. Without middleman between suppliers and FreshDirect, they provide high quality perishables at lower costs to their customers. As people become more concerned about their health insurance and healthy food, people tend to pay more for the organic and natural and safe foods. Along with the needs of customers, who would like unique items, FreshDirect must execute differentiation strategy in order to meet their customers. The mature professionals of FreshDirect should carefully assess what their customers want to buy despite having higher prices. If FreshDirect brings something unique to the industry, it'll increase sales level of FreshDirect and enhance their reputation and image.

Recommendation

After considering all three alternatives, the next alternative, Franchising is recommended. Franchising will be more appropriate to increase FreshDirect's principles and market stocks with relatively limited risk. The main business principle is to maximize income with limited options. Franchising can decrease the risk to penetrate the new abroad marketplaces. Today, FreshDirect face many difficulties and issues. One main drawback of FreshDirect is only serving the limited areas. This places a ceiling of which FreshDirect can make income as well as limiting their potentials to increase. However, FreshDirect can expand their marketplaces with efficiently monitoring and managing the quality based on their mission assertion, "Top quality and cheap". Also, an investment in expanding technology and efficient functioning facility can be financed by the excess income from the loyalty fees. FreshDirect has done an unbelievable business so far and will continue to set the standard in the web food industry.

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