Dive Brief:

• Ahold Delhaize has agreed to purchase 80% of FreshDirect, a New York City-based online grocer, for an undisclosed cash price, the Dutch grocery company announced Thursday. Private equity firm Centerbridge Partners is acquiring the remaining 20%.
• FreshDirect will keep its brand name and continue to operate independently out of its facility in The Bronx, New York after the sale is complete. The deal is expected to close in the first quarter of 2021. 
• Ahold Delhaize’s decision to buy FreshDirect gives it access to the highly competitive New York online grocery market through an e-commerce company that is well established and has strong brand equity.

Dive Insight:

Taking control of FreshDirect, which has more than 20 years of experience operating as a pure-play online grocer, positions Ahold Delhaize to build its presence in the busy and complex Northeast grocery scene. 

“With online grocery soaring, it makes sense for Ahold Delhaize to secure a slice of the action by acquiring a majority stake in FreshDirect,” said Neil Saunders, managing director of GlobalData Retail. “The deal will also give Ahold Delhaize access to the lucrative New York grocery market and the customers that FreshDirect currently serves. At a stroke, this expands the company’s reach.”

The transaction could also give Ahold Delhaize the opportunity to distribute items it sells through chains like Stop & Shop and Giant Food to a new set of customers. In addition to the New York City region, FreshDirect, which has enjoyed strong sales this year as the pandemic has fueled e-commerce demand, offers service in Washington, D.C., and the Philadelphia metropolitan area.

Along with its established position in the nation’s largest city, FreshDirect brings a wealth of fulfillment expertise that complements Ahold Delhaize’s years of experience running Peapod, which used to operate standalone service and now serves as an operational arm for the grocery company. FreshDirect added two-hour on-demand delivery service to parts of New York City in June and has been expanding capacity as well as same-day delivery to the suburban markets it serves. In July, the company announced that it was opening a micro-fulfillment center at one of its distribution centers in the Washington, D.C., area in partnership with Fabric, an MFC technology provider.

The tie-up with a deep-pocketed company like Ahold Delhaize also could strengthen FreshDirect’s ability to compete against well-funded rivals like Instacart and Uber that are also jostling for a share of New Yorkers’ grocery budgets, according to Saunders. 

“From FreshDirect’s perspective, having a group with the buying power of Ahold Delhaize behind it will be useful for improving margins,” he said.

In a statement, Ahold Delhaize CEO Frans Muller said acquiring FreshDirect gives the grocery conglomerate another valuable tool in its omnichannel arsenal.

“With its unparalleled quality of fresh food, exceptional brand recognition, and dedicated people, [FreshDirect] has generated remarkable customer loyalty," he said. "This acquisition further propels our omni-channel evolution. It is a great addition and fit for our portfolio of leading local brands. The deal allows us to reach additional customers in the New York trade area and therefore will add incremental sales to the business."

David McInerney, FreshDirect's CEO, said in a statement that "Ahold Delhaize's global scale, focus on strong, leading local brands, and ability to utilize cost-of-goods synergies, will allow FreshDirect to achieve its full potential.”

FreshDirect is moving under the Ahold Delhaize umbrella a little more than a year after word that the privately held company was looking for a buyer circulated. Walmart and Amazon were reportedly interested in buying FreshDirect, but were turned away.