Exclusive Q&A: FreshDirect sees online holiday opportunity

Despite inflation and supply chain disruption, direct-to-consumer grocer FreshDirect is preparing for a successful holiday season.

In a recent interview with Chain Store Age, Scott Crawford, chief merchandising officer of FreshDirect, discussed challenges and opportunities facing e-commerce retailers as they enter the holiday shopping period.

Headquartered in Bronx, N.Y., and a subsidiary of Ahold Delhaize USA, FreshDirect delivers fresh food groceries directly to customers in Tri-state New York area.

[Read more: Ahold Delhaize to acquire Fresh Direct]

What new e-commerce trends do you see developing from the holidays?
What we're excited to see for the holidays is how people are going to hopefully celebrate with larger audiences again, as opposed to smaller family gatherings. We're seeing that happen already in our current mix.

The sales for our catering department are literally heading towards doubled year over year. However, there's definitely going to be a value play that comes within that. We're waiting to see how that unfolds and we're doing some things strategically to make sure we're ready there.

And then, there has been an extensive amount of travel in the in the areas we serve over the summer. And we're anticipating that people got more travel out of the way than what would normally have happened pre-pandemic. Does that mean they're going to be more sedentary for Thanksgiving? Those are the top three things that we are anticipating.

How do you see inflation affecting online shopping patterns?
Fresh Direct is seeing people trading into larger sizes and getting the price per unit down. In a couple of categories, we have seen people buying larger packs of chicken.

We are seeing people buying more private brands, and one of the things that has really helped us out with our partnership with Ahold Delhaize USA is that we have brought on over 400 new SKUs, which deliver really high value at really great costs.

I would say that we've also seen a trend of eating at home picking up a little bit, so our prepared foods are starting to see positive trends over the past you three or four quarters. Also, customers are ordering larger entree sizes, so that once again is an indicator that people are eating at home as opposed to going out.

Do you think inflationary trends will continue throughout the holiday season?
Yes. Our week-over-weeks are becoming more normalized in some of those categories I mentioned. There is definitely stability coming. Some of them are still climbing up a little bit. I don't know if it's fully normalized, but I don't see the trend changing in our typical business in the areas that we serve.

How much of an impact do you think supply chain disruption is having on e-commerce?
Customers can come onto our site and purchase something seven days in advance. This means we start to get signals of demand seven days in advance, which gives us the opportunity to have the inventory positioned in the best place possible.

Fresh Direct buys inventory in a couple of different ways. We can buy and sell only once we possess it, and we can buy it and sell it before we possess it. For example, if you went on the site today to order seafood to be delivered next week to your house, there's a high likeliness that seafood hasn't even been harvested yet.

If we see something happening that we can't control, we won't put it up for sale. If we see something that we know we can control, we put it on sale way advance of even having the product, and there's a lot of extremes in between those two cases.

The other advantage of the supply chain that we have is that if a primary resource doesn't have our items, we have secondary resources that are equipped without any human interaction. That's all managed with our ERP system. This provides more flexibility of sourcing goods more rapidly.

We also have a couple of large vendor partners that feed us their demand signals as well as their supply signals. This enables us to see, for example, whether something is getting tighter on the market so that we can increase our safety stack and put more inventory in the building.

Once again, this is all managed via the proprietary FreshDirect ERP system that has been built over our 20-year history.

How can retailers launch and effective private brand strategy?
The first question that a retailer needs to answer is, are they doing it on price or are they doing it on quality? Because there are two different approaches, and I think private brand over the years has become more quality.

If you go back into the 1970s and 1980s, when private brands first started standing up, it was about just price. The second question would be, do you have the buy-in to support a private brand strategy? Because it can tie up a large amount of capital, and changing the packaging can become a real constraint on capital as well.

Once you get past those two questions, then it becomes what categories are your consumers looking for value in the most? There are certain categories that the consumer doesn't really care about for private brand at all. And then there are other categories, moving categories, that people do see the value in for private brands.