Dive Brief:

• Northeast e-grocer FreshDirect has opened a state-of-the-art facility in the South Bronx that will help the company expand and deliver grocery orders faster and more efficiently. The 400,000 square-foot Fresh Campus, as it’s called, includes nine miles of conveyor belts, smart routing technology, automated order picking and temperature-specific rooms for various fresh products.
• The new facility will help FreshDirect source more local products and build relationships with existing local vendors, the company noted in a press release. It will also help the e-grocer build out its on-demand delivery program, FoodKick, which launched last year, as well as its FreshDirect At The Office service.
• The facility will also help the company develop new products and prepared foods. The fulfillment center triples FreshDirect's kitchen facilities, allowing it to prepare more meals and refresh them seasonally. The e-grocer plans to release hundreds of new products this year, including more than 800 snacking items and more than 500 organic products.

Dive Insight:

FreshDirect has operated profitably in the northeast for years, having established arguably the strongest business model in e-commerce. But Amazon’s acquisition of Whole Foods last year kick-started a surge in online grocery competition and innovation, and now the company has to make sure it’s ready for the battle ahead.

The fight in its New York City hometown has always been tough and will only escalate from here. Earlier this month, Walmart announced it would build a Jet.com warehouse in the Bronx focused on grocery, home goods and general merchandise fulfillment. The mass retailer has long struggled to break into the Big Apple and could gain a valuable foothold through its millennial-focused service.

FreshDirect’s toughest challenge will be an Amazon-backed Whole Foods. The specialty grocer, which has more than a dozen locations in the city, currently offers New Yorkers delivery through Instacart, and plans to soon roll out free two-hour delivery to Prime members. And while Amazon has hit some bumps in the road with its Fresh delivery service — which directly competes with FreshDirect — the company will likely revamp that business in major cities like New York.

These competitors along with Kroger, Albertsons and other major grocers are pouring money into high-tech fulfillment operations. So it’s only appropriate that FreshDirect answer in kind. The company’s new facility is highly automated, relying on robot pickers and advanced routing technology to speedily pick and pack orders. At the same time, it relies on skilled human workers to fulfill fresh orders, with each person handling no more than 30 types of products to ensure expert handling.

The new facility should help FreshDirect continue to deliver on its core strength of offering high-quality fresh products. All told, the company does around 70% of its business in perishables. It should also help FreshDirect expand to new locales. The company’s delivery network currently stretches from Connecticut down to Washington, D.C., with plans to bring Boston online soon.

FreshDirect takes in an estimated $800 million in annual revenues, and has more than doubled its sales since 2012, according to Bloomberg. That performance will come under pressure from Amazon and Walmart, which offer lower prices on products and delivery. Competitors may also have a leg up in on-demand delivery, considering FreshDirect’s own offering here, FoodKick, is still pretty new to the game.

But the e-grocer has some distinct advantages that will make it tough to compete against. In the 17 years since it began delivering groceries across New York’s five boroughs, it’s become a favorite of the Big Apple’s notoriously hard-to-please residents by offering consistently fresh products and top-notch customer service. It's also developed a highly sophisticated distribution and production network that includes a vertically integrated prepared foods operation calibrated to daily demand levels.

FreshDirect will stick to the plan that’s delivered success for so long. For the likes of Amazon and Walmart, it will prove to be a tough competitor that will test the mettle of their grocery delivery offerings.