FreshDirect plots aggressive expansion following acquisition
The Bronx-based company, whose orange-and-green delivery trucks have crisscrossed New York for 18 years, hopes to ramp up its quick-service options and delivery infrastructure in New York, Philadelphia and Washington.
“The online food market is at a level that we have never seen before, with customer demand almost insatiable,” McInerney said. “It just makes sense to really expand aggressively now.”
Ahold Delhaize owns the Peapod grocery-delivery service, which is integrated into the Stop & Shop brand. Peapod has struggled to gain a foothold in the city, however.
“This is a great brand ‘FreshDirect’ with a focus on fresh and a very loyal customer base,” said Farhan Siddiqi, Ahold Delhaize’s chief digital officer. “We are interested in this as a partnership.”
The deal caps off a tumultuous few years for FreshDirect. The company struggled with the move of its warehouse in April 2018 from Long Island City to a 400,000-square-foot center in Hunts Point in the Bronx. Customers complained as items went out of stock and prime delivery slots became scarce.
Within months, McInerney replaced fellow co-founder Jason Ackerman as CEO, helping guide an operational turnaround. In fall 2019, the New York Post reported that FreshDirect was up for sale, under a push from its lead investor, JPMorgan Chase.
McInerney declined to say how long FreshDirect had negotiated with Ahold Delhaize before Thursday’s deal, which the companies expect will close early next year.
Covid-19, of course, helped drive new customers to FreshDirect, but the increased demand brought issues of its own.
“Instacart was able to take significant market share because FreshDirect could not deliver to its legacy customers during the pandemic,” said Burt Flickinger, managing director of Strategic Resource Group.
Consumer spending data from Second Measure shows that Instacart’s sales in New York City climbed almost 700% in April, year over year, and were still up about 250% for October. FreshDirect’s sales climbed about 50% year over year in April and were up about 40% last month.
Instacart is scaling up. The firm has hired Goldman Sachs to lead an initial public offering early next year that could value the company at around $30 billion.
“FreshDirect is facing increased competition in online grocery delivery, not only from DoorDash and Amazon but also from the traditional supermarkets that continue to accelerate and elevate their online grocery offers,” said Laura Kennedy, a senior retail analyst at CB Insights. She added that the supermarkets often use services such as Instacart.
Flickinger estimated FreshDirect’s value at between $250 million and $300 million, well off the $1 billion valuation the company once sought. Still, he said, McInerney has skillfully turned FreshDirect’s operations around to make itself an attractive acquisition. The company has an affluent, loyal customer base and can build off that with the backing of Ahold Delhaize’s scale, he said.
Despite the new European ownership, McInerney said the company will keep its headquarters in the Bronx.
