It’s all about the food

On the day when Tesco refuted claims that it was supplying spiders along with its grapes, comes news of a new on-line grocery business serving New York City (well, the Upper East Side at any rate).

According to the BBC (BBC News | UK | Tesco denies using deadly spiders):

Tesco has admitted that a drive to use less pesticides in its food could mean more spiders turning up in bags of fruit. But the supermarket denied that food producers are using black widow spiders, after three customers found them in bags of grapes. In separate incidents, the three women discovered the deadly spider among American-grown grapes bought from Tesco stores. Two of the spiders were alive. The company says producers do use natural predators to protect fruit, as an alternative to chemicals. But it strongly denies that the distinctive spider, whose venom is 15 times more potent than a rattlesnake, is deliberately used on suppliers’ crops in the US.

If that sounds like a scary disincentive, consider FreshDirect, a new on-line grocery delivery business based in Queens and currently serving the East Side of Manhattan.

According to Fortune magazine (The Online Grocer Version 2.0):

Their cargo–meat, fish, cheese, fresh-baked breads, produce, and other foods–sells at prices about 25% below what most New York grocers charge.

FreshDirect does deliver specialty-store-quality fresh food and prepared food at strikingly low prices.

It’s a measure of the times that Fedele and Ackerman [the company’s founders] refuse to call FreshDirect a dot-com. And while they admit that the company could not exist without the web (orders are placed on for delivery the following day), they insist that efficiency, not technology, is the point. “Our idea was to build the ultimate food company that could scale,” says Ackerman. “The only reason we chose the Internet was that it helped us reach people at a lower transaction cost. It allows us to do for food what Michael Dell did for computers.” One of the great unfulfilled promises of the Internet has been that it would enable manufacturers to sell directly to consumers. But few companies other than Dell have actually done it.

And of course Webvan failed spectacularly. That first great Internet grocery scheme spent more than $1 billion on huge distribution facilities in seven cities before closing shop in July 2001.

Why should these guys do any better? It’s a question they are asked constantly. Fedele and Ackerman insist Webvan was merely a distribution company that missed the point. Says Fedele: “This is a company based on food people, not dot-com people.” FreshDirect’s motto: “It’s all about the food.”

Hmmm…this is interesting. Up to now I had rather assumed that the attraction of on-line home delivery services was the convenience of the service rather than the quality of the food, which I have always assumed would be identical to that purchased in person at any given store. Certainly, here in the UK the food delivered by Tesco, Sainsbury’s, et al., is identical to that found in their stores. In most cases, the food actually comes from your local shop, so it is literally the same food that you would buy if you went shopping in person.

The interesting aspect of FreshDirect’s strategy is that it is offering better food at lower prices, as well as the convenience of on-line ordering and home delivery, which quite frankly sounds too good to be true. I find myself wondering what exactly "specialty-store-quality" really means and how it compares to the quality offered by the average grocery store in the UK. I also wonder if this approach would work outside of Manhattan, or more specifically in places where food is less expensive. Presumably shoppers in Queens already pay less for their food than residents of Manhattan. Will FreshDirect be as appealing to them?

Of course, Ocado (about which I have written previously, and on which the Economist reported just last week, see Off Their Trolleys) claims to be offering similar benefits here by supplying only food from Waitrose, which is generally considered to be the UK’s highest quality grocer; but Ocado is definitely not cheaper than food sold in Waitrose’s stores, in fact the delivery charge makes them more expensive still.

So perhaps FreshDirect’s approach will be limited to places with unusually high food costs. Of course it’s early days, and it remains to be seen if they can even make it work in Manhattan.