FRESHDIRECT Online grocery business thrives

The new food delivery service is getting a strong start in Manhattan.
NEW YORK (AP) -- Imagine buying avocados at the ripeness you want and marinated meat in your favorite cut -- not by walking or driving to the store, but clicking online.
And having it delivered the next day, and paying as much as 25 percent less than you would at the local supermarket.
This might sound like the empty promises from those dot-com days in the late 1990s, but it's the concept behind Freshdirect, an online grocery business that's working its way through Manhattan and planning to expand to other big metropolitan areas.
Freshdirect, officially launched last September, aims to reinvent the way the fresh-food business is sold online by buying directly from the source and processing orders to customers' tastes.
The start-up, which said it is exceeding sales and profit goals, is part of a new wave of retooled online grocery businesses like Peapod, now owned by grocery giant Royal Ahold, that's revitalizing the sector.
But some skeptics wonder: What will happen to sales when the novelty wears off?
Why this works
CEO Joe Fedele -- who founded the business with former investment banker Jason Ackerman -- said Freshdirect's success has very little to do with the Internet and convenience. Rather, it has everything to do with giving customers what they want -- quality food at a good price.
"We're about food. The Internet is just a tool," said Fedele, a 25-year food veteran. He founded the successful Fairway Uptown, a specialty foods store in Harlem that attracts consumers from throughout the New York metropolitan area.
Freshdirect currently features 8,000 products -- 5,000 in perishables and 3,000 in packaged goods like cereal.
The site, which offers tips on preparing various foods, will eventually have 2,500 recipes and over the next few months will feature videos of famous chefs cooking.
Twenty-eight percent of consumers who click onto Freshdirect.com are from outside New York, apparently using it as a resource.
Manhattanite Tara Bennett, 27, a transplant from Virginia, who wasn't happy with the fresh produce and meat at local supermarkets, began using Freshdirect in January.
She and her husband have been spending about $120 every two weeks on such products as meat, vegetables and dish detergent.
"It's excellent quality. And the delivery is prompt," said Bennett, who calculated that she saves about 20 percent on the food she buys online.
Dotcom grocers including Webvan.com, which closed down in 2001, were among the high-profile casualties of the Internet bust, but last year the online grocery sector "got its second wind," said Kate Delhagen, analyst at Forrester Research in Cambridge, Mass.
"That's the year they figured out the business. Most are either close to making money or breaking even," she said.
Incentives
To lure customers, Freshdirect company offers $50 worth of free food for the first delivery, as long as consumers order the $40 minimum. It's waiving the $3.95 delivery charge for the first three orders.
Freshdirect has about 24,000 steady customers and is expected to top its sales goal of $120 million for the first year in business. It's also expected to generate a profit on an operating basis by year-end, a year ahead of schedule.
Still, at least one analyst -- Burt Flickinger, III, managing partner at the consulting firm Strategic Resource Group -- doesn't "have a lot of hope that this one will work," given the sluggish economy and the overall problems in the food industry.
As Freshdirect expands to other markets, he wonders how it will compete against wholesale clubs like Costco and other retailers that are price competitive and have "world-class" operations.
He thinks the online grocers that will make it will be those tied to a bricks-and-mortar operation.
Fedele appears unfazed about the competition, arguing that most of the other online rivals mimic a supermarket offline.
They fill the Internet orders from the individual stores. Costco doesn't sell small amounts of food.