Online grocer FreshDirect considers a move into the Baltimore area

N.Y.-based company said to target several cities for expansion

January 03, 2011|By Lorraine Mirabella, The Baltimore Sun

FreshDirect Inc., an online grocer looking to expand beyond its New York City base, might bring its service to Baltimore.

The company, based in Long Island City, N.Y., has targeted several cities, among them Baltimore, Washington, Philadelphia and Boston, but has not said when or where any new service would start, according to a spokeswoman. "Baltimore is definitely an area that they are looking at for the expansion," she said.

FreshDirect CEO Richard S. Braddock, former CEO of online travel company, has said the company would raise money for an expansion. According to a report from Bloomberg News, FreshDirect is planning to raise as much as $200 million to expand to Washington and Baltimore. FreshDirect officials declined to comment on that report.

The Internet grocer, which is not affiliated with a supermarket retailer, touts its food as fresh and inexpensive because it comes from farms, dairies and fisheries — not from middlemen distributors. The company now offers service throughout New York City and in parts of New Jersey and Connecticut.

In the Baltimore area, FreshDirect would face competition from online grocer Peapod, owned by Dutch food conglomerate Royal Ahold NV and offered through Giant Food stores in Maryland, Washington and Virginia.

Despite some early predictions that online grocery shopping would ultimately overtake supermarket shopping, the market share for online grocers has remained less than 1 percent of any market, said David J. Livingston, a managing partner with DJL Research in Wisconsin.

"You need to be in a huge metro area and have a huge population available," Livingston said. "If you're going to expand, you need to be in a market where you've got a lot of vertical population and a lot of people without cars. It's only going to work in certain markets."

Many of the companies that jumped on the online grocery trend a decade ago grew too quickly, misjudged their markets and the demand, and failed to offer competitive pricing for food and delivery, analysts said. And consumers, for the most part, still like to select their own fresh produce and meat.

"We all thought 15 years ago that it would replace our grocery shopping," said Harry Balzer, a vice president of the NPD Group, a marketing research firm that tracks consumers' eating habits. "That's still not the case, though I still think there's a place for this in our lives. Some [households] will use this as a primary shopping vehicle."

Companies that have succeeded have found the right-sized market area to serve and the right rate structure to cover the labor-intensive business of fulfilling orders and making deliveries, said Charles Cerankosky, managing director of Northcoast Research in Cleveland.

FreshDirect appears to have found a formula that is working, serving dense areas and "identifying the customers who are willing to value the service enough," Cerankosky said. By those measures, he said, the Baltimore and Washington regions, with strong demographics and road networks, could be a fruitful market for FreshDirect.

"As they expand, staying on the East Coast is good — the population density is high along the East Coast," Cerankosky said. "It's no guarantee of success, but it makes it more likely."

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