Technology

FreshDirect, After Broken Eggs and Angry Customers, Stages a Comeback

About a year and a half ago, longtime patrons of the pioneering grocery delivery service FreshDirect started complaining that orders were arriving hours late. There were broken eggs and spoiled fruit. One customer reported that she had paid $200 for groceries — only to receive nothing but seltzer and a loaf of bread.

The source of the problems was FreshDirect’s multimillion-dollar headquarters in the Bronx, a distribution center with nine miles of conveyor belts that the company opened in the summer of 2018 after moving out of a smaller facility in the Long Island City section of Queens. A complex automated system was creating confusion on the floor of the new warehouse, resulting in canceled orders, missing items and long waits.

At the height of the crisis, FreshDirect’s chief executive, Jason Ackerman, stepped down and was replaced by David McInerney, who had helped run the company since the early 2000s. Over the next months, FreshDirect made logistical fixes that gradually eliminated the distribution problems. But plenty of damage had been done.

“We had so much trust, we could’ve built a bank of trust,” Mr. McInerney said in a recent interview. “Over time, that trust was eroded.”

Something else also eroded as FreshDirect struggled: its hold over the grocery delivery industry in New York. Over two decades, FreshDirect had accumulated a loyal following of well-to-do Manhattanites as one of the first companies in the country to execute a successful grocery delivery operation. Now, however, it faces an increasingly wide array of rivals, including Amazon, which owns Whole Foods and won over a number of FreshDirect’s customers during the chaotic transition to the Bronx.

“When FreshDirect first started, they didn’t have the competition that they have now,” said Phil Lempert, a retail and grocery analyst. “They have 100 things working against them.”

While it remains the most popular online grocery service in New York, FreshDirect’s share of the market dropped to 46 percent at the end of last year, from roughly 66 percent in 2017, according to the research firm Second Measure. Over the same period, Amazon’s share nearly tripled to around 22 percent, from a little under 8 percent. Rivals like Instacart and Stop & Shop’s Peapod brand also made up ground.

“Amazon will take more and more of FreshDirect’s sales,” said Burt P. Flickinger III, a retail and supermarket consultant. “It’s the proverbial David versus Goliath story.”

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