To compete with big e-commerce players like Amazon and big grocers like Kroger, delivery companies are now building massive high-tech distribution warehouses.
The poster child: FreshDirect, a direct-to-consumer grocery service, which just opened a 400k-square-foot distribution facility in the Bronx to deliver even more avocados.
The biggest challenge for same-day food delivery is preventing perishable fruits and veggies from half-rotting by the time they’re delivered. So to solve the problem, companies have begun to build distribution hubs to accelerate the packing and shipping processes.
With dedicated facilities and fewer middlemen, companies like FreshDirect can deliver swordfish caught in Nova Scotia to dinner parties in Connecticut in 24 hours.
It may seem expensive to add distribution centers into the supply chain, but it seems to be working: In the last 6 years, FreshDirect doubled sales. Today, FreshDirect makes $800m in annual revenue, enough to fuel multi-city expansion plans.
In the food industry, e-commerce accounts for 2% of sales, compared to 10% economy-wide. But increasing interest in grocery delivery is expected to drive online grocery sales from last year’s $14.1B to $40B by 2021.
FreshDirect leads the New York metropolitan market with 54% market share (#2 Peapod has 21%, and Amazon has 8.8%) thanks to high-tech facilities like the new one in the Bronx that keeps quality groceries fresh.
But, with revenues more than 100x FreshDirect’s, competitors Walmart and Amazon are investing heavily in delivery. Earlier this month, Walmart announced its plans to build a distribution warehouse in the Bronx — and, knowing Bezos, Amazon probably isn’t far behind.