FreshDirect Competes on Analytics

More than a decade ago, our family started ordering our groceries from an online grocer that delivered right to our house. In fact, they put a full-size refrigerator in our garage so that perishable food would not spoil while we were at work. We loved it. Then the company went broke. They’re gone, but we still have the refrigerator.

A fair number of online grocers came and went. But nine-year old FreshDirect, a grocer that delivers in the metropolitan New York area, is still in business. Brandon Arbiter, VP at FreshDirect, spoke as part of a customer panel at SAP’s Influencer Summit in December (SAP is an ARC client).

Like other online grocers, FreshDirect is a food company, a transportation company, and an online retailer all at once. The company has 600,000 customers and it collects data on every customer, including what they have ordered and every pick and pack associated with delivering an order to a customer.

That’s a lot of data. But what good is data if you don’t use it? FreshDirect is a company that uses data to make smarter decisions.

FreshDirect made BusinessObjects training available to all of its corporate employees (BusinessObjects is SAP’s main Business Intelligence solution). The company was surprised at the number of employees who signed up for training. Brandon mentioned that they have 140 employees at their corporate office and 80 BI users, which shows how democratized the decision-making process is at the company. While many BI users are analysts at the corporate office, they also have BI users in warehousing, transportation, and procurement. Users can only keep their software license if they continue to use the solution on an ongoing basis.

Transportation has come up with an interesting use case. FreshDirect has an operations center that manages its fleet of delivery trucks. In a large metropolitan area like New York, traffic doesn’t always flow predictably. A traditional approach to BI would be to print a report showing the level of on-time deliveries (OTDs) the day before and then ask the transportation department what went wrong for the orders that were delivered late.

FreshDirect uses analytics in a more impactful way. The company monitors the delivery rate of every truck and enters that data into the BI system on an ongoing basis. Every hour, it uses the previous hour’s data to predict how many deliveries will be on-time in the next hour. If the predicted OTD rate is below FreshDirect’s target, the company sends out an auxiliary truck or trucks to help make deliveries. The company holds 10 trucks in reserve for just this purpose.

This type of analysis has allowed FreshDirect to improve its OTD rate from 91 percent to 99 percent. This obviously helps keep customers happy. But because FreshDirect gives customers rebates if delivers are late, on-time deliveries also save the company money.

FreshDirect has also used analytics to improve the fulfillment process. Deliveries that contain damaged eggs were a particular source of customer dissatisfaction. Correcting this problem was a priority. The company’s reports showed that there were 20 complaints for every 1,000 egg deliveries as measured at the line-item level. FreshDirect began experimenting with different forms of packaging. One type of packaging reduced the complaint rate to 17 per 1000 deliveries, another type reduced it to 15. Finally, the company found a form of packaging that reduced the problem by one third.

Then one of its analysts asked a question that seems obvious in retrospect:  “When I’m at the store, I open the carton to see if there are any damaged eggs before I put it in my shopping cart. Are the guys in the warehouse doing the same thing?” They weren’t. When this quality step was added to the process, FreshDirect’s complaints per thousand deliveries dropped by another third. After more tinkering, the company has reduced this key customer retention KPI down to 5 complaints per 1,000 deliveries.

Most companies know they should be competing on analytics. Too few do. FreshDirect shows that you don’t have to be a large company filled with high-priced MBAs to do this.

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