British Supermarket Buys into FreshDirect
Purchasing Safeway in the U.K. allowed North of England-based Morrisons supermarket to establish a nationwide presence. Since then, in less than a decade, advertising spend and, presumably, delivery of advertising promises, have established the chain as one of the top four in the country. Focusing on high quality, low priced fresh food, its pre-tax profits increased 13 percent for the year ended Jan. 30.
Meanwhile, the rest of the top four (Tesco, Sainsburys and Asda) have been building an online presence alongside their bricks and mortar stores, leaving Morrisons with an untapped revenue stream -- until now.
At the beginning of March, Morrisons spent £32 million ($51.3 million) buying 10 percent of FreshDirect, an online grocer based in New York. In exchange for its investment, Morrisons will have a seat on FreshDirect's board and will embed a team in the company to learn the ropes. The FreshDirect investment comes on the heels of its acquisition of baby goods e-tailer kiddicare.com.
"I have seen retailers all over the world. Few have inspired me as much as the team at FreshDirect, a highly successful and profitable food retailer with a track record of terrific customer service," said Dalton Philips, Morrisons' chief executive, in a statement. "What we learn from FreshDirect will be invaluable as we plan our own profitable e-commerce business for the U.K."
Speaking to The Guardian, Mr. Philips said the partnership will enable the retailer to avoid the mistakes of its larger competitors, claiming their websites looked the "same" and their web businesses are losing money.
"We don't think anybody has cracked affordable fresh food online," he told The Guardian. "I don't believe anybody is profitable online today."
For FreshDirect, the Morrisons investment is expected to fund its expansion in the online grocery market, as well as to further capitalize the business to support its resources for existing customers. FreshDirect will also receive a minority economic interest in Morrisons' planned London online operation.
"We are excited for our new relationship with Morrisons," said Jason Ackerman, FreshDirect founder and chief financial officer, in a statement. "It's wonderful to have a retail partner who shares our deep passion for great customer service and quality fresh food. This investment is a strong endorsement of our unique business model from a major player in the supermarket industry. This new partnership and capital strengthens our ability to support our strong growth and continued expansion."
During its twelve years in business, FreshDirect has expanded from Manhattan to Queens, Brooklyn and, more recently, New Jersey and Connecticut, The New York Times' Dealbook reports. It is an indisputably high-end business, with an emphasis on quality. Like Morrisons, it is profitable and growing at a healthy rate.