Dive Brief:

• New York City-based FreshDirect is expanding to more areas in Connecticut and Washington, D.C. this month, the online grocer said in a press release. The company has additional expansion plans scheduled later this year through early 2020.
• In Washington, D.C., FreshDirect will expand to suburbs outside of the metro area in Virginia and Maryland. In Connecticut, the retailer will expand to Fairfield, Norwalk, Southport and Westport.
• In addition, the e-grocer introduced a same-day delivery service for customers who place an order before 10 a.m. The service will be available in Manhattan beginning March 11 and will roll out to Brooklyn and Westchester County in the near future. The company also offers its FoodKick service, which launched in 2016 and offers a selection of prepared foods, alcohol and grocery essentials in select markets.

Dive Insight:

FreshDirect is moving to strengthen its business​ as tough competition from Walmart’s Jet.com, Peapod and Whole Foods has grown. Expanding to cities around Washington, D.C., and Connecticut is a natural next step for FreshDirect, as the retailer’s original coverage of New York City expanded to cities in New Jersey and Pennsylvania soon after taking hold.

The expansion comes after a year in which FreshDirect focused primarily on operational growth, most notably with the opening of FreshDirect Campus, its new headquarters and production facility located in the South Bronx.

"Last year was a transition year for FreshDirect with the opening of our new state-of-the-art facility, but we’re excited to announce that the company is returning to growth and expansion in 2019 and beyond," said David McInerney, CEO of FreshDirect, in a statement. 

The company's same-day service expansion, meanwhile, comes more than three years after it launched FoodKick in New York City. Whereas that service targets younger consumers with a limited assortment of products, FreshDirect's new same-day program seeks to reach its broader customer base — many of whom have been exposed to quick delivery through the likes of Amazon and Instacart — with its full assortment.

For online grocers like FreshDirect, serving metropolitan cities works best for the business model. Urban density means less distance and travel between customers, which allows the company to offer shorter delivery times and ensures better food quality —  all of which cut down on costs. But as the retailer spreads to the suburbs, last-mile costs can rise, which puts pressure on the business. FreshDirect’s same-day delivery roll-out will increase these costs. However, expanding into new markets and matching competitors with a same-day service is critical if the company hopes to hang onto its many loyal customers.

Since FreshDirect moved its warehouse from Long Island City to the Bronx neighborhood of Manhattan, the retailer has been facing issues with orders and strained relationships with suppliers, and its new 40,000 square-foot high-tech facility isn’t functioning as expected, the New York Post reported. FreshDirect told The Post these issues are a thing of the past. 

The grocer’s warehouse opening came at a time when competitors like Amazon and Walmart were encroaching on its New York City turf. In July, Walmart announced it would build a Jet.com warehouse in the Bronx to focus on grocery, home goods and general merchandise. In addition, Amazon-backed Whole Foods offers two-hour delivery through Prime. Same-day delivery is a step up for FreshDirect, but as online grocery is becoming more competitive, the retailer may need to speed up its delivery even more.

This is especially true in the Washington, D.C. area as the grocer has even more competition with Giant’s Peapod and Instacart. But FreshDirect’s focus on fresh food, transparency and well-known Just private label should bode well with D.C. and Connecticut’s wealthy suburbanites.