Based on the material provided in this case study and any additional research, r

Question

Based on the material provided in this case study and any additional research, respond to the discussion question provided.

part a: How is it possible, as Braddock noted, to have a great deal of data but little information? How does the SAP database and business intelligence component change this?

part b: How is FreshDirect's use of its database related to its brand image? What is the most important element of their brand?

FreshDirect is an online grocer making more than 45,000 deliveries a week to customers throughout most of New York City and parts of Long Island, Westchester County, New Jersey and Connecticut. With 2015 revenues estimated at $347 million a year, the company seems to be one of the few examples of a start-up, online grocery business actually being profitable. Most previous start-up, online groceries have failed, while existing traditional grocery stores have been more successful in online delivery from their local physical stores. For instance, a leading example of dot-com excess was the flame out of online grocery start-up Webvan in 1999. Webvan burned through $1.2 billion from investors in order to launch its online grocery business in ten markets. Webvan went bankrupt in 2001.

FreshDirect was founded in 1999—just prior to the burst in the Internet bubble. The
business plan for online groceries was to focus on a high-density, single metropolitan area
like Manhattan in New York City, to offer farm-fresh food, and deliver it on-time at prices
about 15% less than local stores. A high-density urban area meant fewer delivery trucks
would be needed, and average incomes were quite high in Manhattan. Most investors
and commentators thought the task difficult, if not impossible. For many years it was a
combination of both.
FreshDirect built a 300,000-square-foot headquarters and refrigerated packing plant in
2000 in the Long Island City section of Queens and made its first deliveries in 2002. In 2014
it built a massive 500,000 square foot new headquarters and food delivery facility in the
Bronx. The FreshDirect Web site features around 3,000 perishables and 3,000 packaged
goods compared to the typical 25,000 packaged goods and 2,200 perishable items that a
typical grocery store offers. To provide the level of service it wanted, FreshDirect created
the most modern automated perishable food processing plant in the United States. While
most of the plant is kept at 36 degrees to ensure freshness and quality control, dedicated
areas vary from a low of minus 25 degrees for frozen foods to a high of 62 degrees in one
of its specially designed fruit and vegetable rooms. FreshDirect butchers meat from whole
carcasses, makes its own sausage, cuts up its own fish, grinds coffee, bakes bread and
pastries, and cooks entire prepared meals. Cleanliness is an obsession— the factory was
built to exceed U.S. Department of Agriculture standards.

Despite attention to production detail at the plant, from 2002 until 2008 FreshDirect burned
through investor cash as it tried to execute on its business plan. According to current CEO
Richard Braddock, nothing went according to the plan. “We broke too many eggs. We showed
up with thawed ice cream. We bruised the produce. We delivered late. Our trucks were stuck
in traffic. We missed items in orders. We didn’t remediate service issues.” If a customer called
to complain, there was no organized way for FreshDirect operations people to find out what
happened or to re-send the order on another truck. According to Braddock, the companies
ability to churn through customers, attracting thousands of new customers, then quickly
losing them once they experience the poor service, provided most of the revenue. Attracting
new users was expensive, requiring extensive online advertising and discounting prices. 85%
of the customers ordered three times or less, then stopped using FreshDirect.
In 2008 Braddock took over as CEO (prior to this he was Board Chairman, and prior to that
a senior executive of Priceline.com). He fired the existing CEO and many senior managers.
He ended the company’s policy of adding new customers at any cost, and stopped offering
discounts to first time buyers. For two years, it simply stopped offering promotions to
first-time buyers. And the new customers simply stopped coming. The danger, of course,
was that the old customers would continue to exit, revenue would decline and the company
would run out of money. “The trick in this business,” Braddock commented, “isn’t to acquire
new customers, it’s to make them loyal.” Braddock soon discovered that FreshDirect had no insight or visibility into its own business
processes. While the end goal was to deliver fresh food to thousands of customers everyday
on schedule, the exact location of orders at any moment was not understood, or who was in
charge of them. Mistakes were happening routinely, but there was no record of how orders
were moving through the logistics chain. Mr. Braddock knew that FreshDirect needed a
system of continuous feedback, a real-time database that would follow every step—and
misstep—of each business day, so that minor gaffes could be resolved before they turned
into big problems. The software would have to track plant operations, along with data
corresponding to some 200,000 active customers at the time and more than 8,500 products.
It would take FreshDirect two years to build this database.
Braddock also decided to upgrade FreshDirect’s Web site, using the company’s internal
database to profile customers and serve a customized online experience. For example,
the site’s software can now analyze order patterns, reminding customers of their favorite
products and suggesting other items they might like, a marketing tool that has worked well
for Netflix and Amazon. In addition, the database recognizes whether a visiting customer is
a new, infrequent, lapsed or loyal customer—and serves appropriate messages and ads.
Critical to the success of FreshDirect is a powerful IT infrastructure that seamlessly connects
online customers to inventory, billing, and then to truck delivery. The firm uses SAP software
(an enterprise resource planning system) to track inventory, compile financial reports, tag
products to fulfill customers’ orders, and precisely control production down to the level
of telling bakers how many bagels to cook each day and what temperature to use. It uses
automated carousels and conveyors to bring orders to food-prep workers and packers.
Managers are able “see into” the order and fulfillment process at any point in order to identify
problems. Alerts are programmed to automatically alert managers to emerging problems. Today, if a truck goes out 15 minutes late or if a container of jalapeño hummus is left off
an order, the problem can be traced to its source. Also, the real-time data reports allow
FreshDirect to shift its resources to areas of customer demand, beefing up capacity based
on the popularity of delivery zones and time slots, anticipating which products might sell
out and stocking up on them in advance.
The FreshDirect Web site is powered by BEA Systems’ Weblogic platform, which can track
customer preferences, such as the level of fruit ripeness desired, or the preferred weight of
a cut of meat. FreshDirect also uses NetTracker, Web site traffic and online behavior analysis
software, to help it better understand and market to its online customers. At peak times,
the Web site has handled up to 18,000 simultaneous shopping sessions. The final piece in
the formula for profit is a supply chain that includes dealing directly with manufacturers
and growers, thus cutting out the costs of middle-level distributors and the huge chains
themselves. FreshDirect does not accept slotting fees—payments made by manufacturers
for shelf space. Instead, it asks suppliers to help it direct market to consumers and to lower prices. To further encourage lower prices from suppliers, FreshDirect pays them in four
business days after delivery, down from the industry pattern of 35 days.
FreshDirect was profitable for the first time in 2008. The key to profitability has been
improving their execution of the initial concept. In recent years, they have introduced the
following “customer centric” ideas:
?? Produce: Employed experts to rate the freshness of all produce and set prices
accordingly. This reduces customer concerns about not being able to feel the
product.
?? Packaging: Eliminated the use of foam, and reduced the number of cardboard boxes
by 1.5 million in response to customer complaints.
?? Favorites: Developed a customer relationship management system that tracks each
customers’ past purchases, and presents them on-screen for re-ordering. Increased
order size by 10%.
?? Recommender system: Added a YMAL (You-Might-Also-Like) cross-selling tool, which
recommends products that other customers purchased. Added 5% to total revenue.

Now in control of its logistics, and with powerful business intelligence tools, FreshDirect
increased customer loyalty and reduced its churn rate (the number of customers who leave
the service). Currently, 65% of its total customer base are repeat, loyal customers, whose
average order size is over $100, and who contribute 80% of FreshDirect revenues. According
to a recent SEC filing, in 2011 FreshDirect has raised $50 million in additional equity from
outside investors. In 2014 the company raised $9 million in additional financing, a very small
investment compared with its competitors (reported SEC Form D 2014). FreshDirect now has
almost 3,000 employees, 300,000 customers, and has delivered more than 6,000,000 orders.
In 2016 FreshDirect faces a growing list of well-financed and experienced competitors:
Walmart is testing the concept in several states. Peapod (one of the original firms in the
industry) now delivers in all five New York City boroughs, along with many other Eastern
and Midwestern states. Amazon (AmazonFresh), and Google (partnering with Seamless,
Grubhub, MyPizza.com, and others), are testing same-day grocery delivery services. Startups
like Instacart, Blue Apron, and even Uber are getting into the meal delivery business.
Can groceries and on-demand shopping services be far behind?

The growing competition may simply expand the market. Food and groceries is the largest
segment of the $4 trillion retail sector in the United States, and there’s a lot of room to grow
online services: only 4% of the nation’s grocery tab is spent online. The online grocery
business is growing at about 10% a year in 2015. This may leave room for smaller players like
FreshDirect who point out that delivering really great bagels, freshly baked croissants (over
5,000 a day), fresh local-farm produce, and don’t forget the hand-sliced prosciutto, is not the
same as delivering books, CDs, or the other staples found on Amazon.

Explanation / Answer

PART A:

To start with basics, lets define the term ‘Data’ first. Data is nothing but facts and information collected for references or analysis. Data is one of the most and of primary importance to any business. Data can provide information and insights to a business which no textbook or a theoretical study can provide. These crucial insights and information can be analyzed and its outcome can be used to make important decisions for the business.

Though the word data and information are usually used together in many areas, in business, analytics or statistics, they may have a variation in their precise meaning.

Now data means raw, unorganized facts which needs to be arranged and processed and is useless unless its organized. On the other hand, information means that data, when processed, organized and structured in such a way that it is now useful.

Now, you can have ample and ample of data, but unless it is not organized, processed or structured, it cannot be useful, and data which doesn’t prove to be usefull cannot be termed as information.

Thus, for instance, there is a lot of data regarding churning of customers, leaving the site, angry complaints, etc. But why and at what instances are those customers churning, what happened that they had to leave the website, which was the service point which made them angry; if such data is not with you, how is it of any good. Now imagine, if you had the data of the customer’s churning ratio along with the reasons why is that happening, you would have a great insight to what can be done next to avoid that from happening again and you can take decisions regarding what to do next.

As Braddock noted, they had a lot of data, but the data was not processed, organized or structured. Thus, data was available in ample amount, but information was minimal.

SAP, in the simplest terms, is an Enterprise Resource Planning (ERP) software which allows organizations to manage their business operations across procurement, manufacturing, services, sales & marketing and HR.

Here, SAP helps FreshDirect to track inventory, compile financial report, tag
products to fulfill customers’ orders, and precisely control production down to the level
of telling bakers how many bagels to cook each day and what temperature to use. It uses
automated carousels and conveyors to bring orders to food-prep workers and packers.
Managers are able “see into” the order and fulfillment process at any point in order to identify
problems. Alerts are programmed to automatically alert managers to emerging problems. Today, if a truck goes out 15 minutes late or if a container of jalapeño hummus is left off
an order, the problem can be traced to its source. Also, the real-time data reports allow
FreshDirect to shift its resources to areas of customer demand, beefing up capacity based
on the popularity of delivery zones and time slots, anticipating which products might sell
out and stocking up on them in advance.

Now, all the activities which SAP does, are some of the most crucial elements and attributes of FreshDirect.For instance, FreshDirect has financial data in the form of numbers. But it is not useful unless it is compiled in the form of a report, and that only SAP does for FreshDirect. And simultaneously, SAP does many other tasks and this helps in transforming mere data into insightful information and this can help in taking great decisions related to the firm.

PART B:

“Food and groceries is the largest segment of the $4 trillion retail sector in the United States, and there’s a lot of room to grow online services: only 4% of the nation’s grocery tab is spent online. The online grocery business is growing at about 10% a year in 2015. This may leave room for smaller players like

FreshDirect who point out that delivering really great bagels, freshly baked croissants (over
5,000 a day), fresh local-farm produce, and don’t forget the hand-sliced prosciutto, is not the
same as delivering books, CDs, or the other staples found on Amazon.”

This part shows that FD is a grocery delivering firm which believes that a small targeted segment, if served properly and effectively can be made loyal, and as the market as not tapped much, there is scope for such companies to grow.

“Currently, 65% of its total customer base are repeat, loyal customers, whose
average order size is over $100, and who contribute 80% of FreshDirect revenues. According
to a recent SEC filing, in 2011 FreshDirect has raised $50 million in additional equity from
outside investors. In 2014 the company raised $9 million in additional financing, a very small
investment compared with its competitors (reported SEC Form D 2014). FreshDirect now has
almost 3,000 employees, 300,000 customers, and has delivered more than 6,000,000 orders.”

This database shows us that, though faced by fierce competition, FD has created a goodwill and a name in the market. 65% of repeat customers is a very great sign of a company at this stage. These people result into 80% of FD’s revenue. This is a great progress. This database shows their brand image as a company which offers great service and thus people re-but from FD. Being customercentric, by responding to customers in a positive way by making various changes increases their positive brand image. The most important element of this company is the ‘favorites’ section, which is responsible of 10% of the total revenue.

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