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FreshDirect Positions Vending As A Fine Dining Destination

Posted On: 3/27/2009

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FreshDirect, Vending, Vending Machine, Coin-Operated, Fine Dining, Cashless, Grocery, Foodservice, Foods

NEW YORK -- New York City professionals who can select from a glorious mosaic of cuisines served by upscale eateries along almost every street are opting to dine at their desks and savoring restaurant-quality entrees from a FreshDirect vending machine.

FreshDirect, which has made a name for itself with its online grocery delivery service to an expanding range of New York City metropolitan-area neighborhoods, has parlayed its expansion into home meal replacement into workplace feeding. The next step has been the introduction of FreshVending (see VT, Jan. 2009).

The Long Island City, NY-based company's status as a well-known online food purveyor that has expanded into vending, and its innovative adoption of technology, have put it in a unique competitive position. It has partnered with well-known New York restaurants to develop recipes optimized for on-demand sale. Beef short rib enchiladas from the city's famed Rosa Mexicano and chicken tikka masala, an Indian specialty from the esteemed Tabla restaurant, are just a few of the selections on the menu.

Employees at the inaugural FreshDirect vending site, surveyed two months after the program's October 2008 launch, ratified its success with a 90% satisfaction rate, director of business development Larry Pearl told VT. "Overwhelmingly, they thought it was delicious, faster than going out or ordering in and more convenient. Our customers have validated everything we've been out pitching. The consensus is the 'bang for the buck' of a restaurant-quality meal for $10 or less, without leaving the office, can't be beat."

The unusual direction from which FreshDirect entered the vending business prompted the development of a different approach to the business that can hold lessons for other operators. For one thing, it lends weight to the minority view in vending that fresh food can be a moneymaker in its own right. By flexing its marketing muscle to position the vending machine as a convenient, dynamic delivery system for savory, healthful dishes, FreshDirect has created a buzz in the breakroom. It is profiting handsomely from a hungry and appreciative market without needing to get the snack and drink sales, too.


Its patrons are sophisticated white-collar workers who regard the Fresh Vending machine as a destination for an upscale meal. Freshly prepared ethnic dishes bearing the names of recognized chefs continue to belie the uninformed view of food vending as a last resort stocked with industrial sandwiches. FreshDirect is demonstrating that there is no arbitrary upper limit to the quality of food that vending can provide, the image it can present and the price customers will pay. While many operators are still struggling to break through the $5 price ceiling for refrigerated entrees, time-crunched FreshDirect customers put a premium on the convenience of first-rate hot meals right in the office at the swipe of a credit-card, and consider the $7 to $10 price range fair -- or better; New York City is not known for inexpensive dining.

"Employees working late at night feel a hunger pang; then they have to decide what to order, order it, wait for it to be delivered, perhaps go to the lobby to receive it, and on top of all that, pay a tip," Pearl pointed out. "With the FreshDirect vending program, they can enjoy a delicious microwaveable meal four minutes after they decide they're hungry. People stay late in order to get their work done and then go home. It's a real time-saving solution."


It is axiomatic that brands sell in vending, but few operators have found a way to leverage the power of branding on behalf of their commissary food. FreshDirect benefits from its established reputation and high-profile presence as an online grocer serving the city's five boroughs and outlying suburbs for the past seven years. Many patrons who walk up to the boldly brand-identified machines have been ordering their groceries -- as well as microwaveable meals -- from FreshDirect for delivery to their homes for years. And even New Yorkers who are not FreshDirect customers can't help noticing its bright green and orange delivery trucks traversing the city streets each day.

Following the success of its online grocery delivery service, the company expanded into home meal replacement by partnering with select chefs to help develop recipes for delivery to its customers. Prepared at the FreshDirect commissary in Long Island City, just across the East River from midtown Manhattan, the meals are packaged in high-tech containers that take full advantage of microwave rethermalization by retaining the moisture of the fresh vegetables, meats and sauces as it evaporates, thus pressure-cooking each dish to perfection in four minutes. They are formulated for a shelf life of three to five days.

"The process ensures taste, texture and safety are consistent every time," noted key account sales director Marc Rosen. "When we make a presentation, we often bring a meal out on china plates, with silverware. Then we show them the package it came out of. They don't believe it can be prepared by employees in a microwave oven until they see it done."

In addition to dishes from well-known Manhattan establishments, FreshDirect offers a line of vegetarian entrees co-branded with EatingWell and carrying that magazine's logo, and a 500-calorie Smart & Simple line under its own FreshDirect marque.

After selling thousands of these high-quality meals to its residential customer base each week, word spread and demand grew from the corporate world. Many corporations that had already been purchasing snacks and beverages from FreshDirect to provide free of charge to their employees, decided to furnish its convenient upscale meals as a perk to staff members whose demanding workloads require them to skip their lunch hour and stay later than dinnertime.

FreshDirect's extension into vending began two years ago, after several large companies asked how they could make the meals available for sale to their staffs. In many cases, the employer was prepared to reimburse the employee for meals, but wanted the purchase on record.

Robotic retailing was the obvious solution, so Pearl attended his first National Automatic Merchandising Association Expo for a crash course on the industry. After touring the exhibits, making connections and exploring his options, Pearl selected Automated Merchandising Systems' refrigerated Visi Diner, and chose InOne Technology to provide the remote monitoring and cashless payment capabilities that the company recognized would be pivotal to the program's success.

"We were very fortunate to pair up with InOne's Gene Ostendorf; he's been a great Resource and partner," Pearl told VT. "He educated us on vending and helped build the infrastructure to support our vision. He integrated his kit -- modem, cable, card reader, technology and processing -- with the AMS machine and it's the perfect fit.

"When you're dealing with fresh food, tracking sales and inventory is very important," the Fresh Direct executive emphasized. "InOne's technology gives us real-time data that is invaluable."


FreshDirect launched its pilot program a year ago at a few large companies in Manhattan. This test not only validated the potential of its vending model, but also helped identify areas that needed fine-tuning.

"We really wanted to learn, understand and be proactive to configure the machine as an answer to what people were looking for," Rosen told VT. "We took the time to understand the technology, such as the alerts that let us know when the machine needs service. We spent 2008 learning, tweaking and adjusting our test machines, adapting the technology, narrowing down the core menu of top meals and establishing the ideal menu rotation. There has been a learning curve, and InOne has been very progressive in evolving with our needs. Gene's been right there by our side, building new tools to support us as we continue to push the envelope."

One valuable piece of information FreshDirect learned during the test phase was that employees entitled to reimbursement for meals purchased when they worked late needed a receipt for their FreshDirect purchase to submit to their company. InOne customized a solution by setting up a secure dedicated website -- freshdirectmeals.com -- where customers can sign up by registering name, credit card number and email address to receive automatic "e-receipts" with each purchase made, or go online to print the receipts on demand.

"Human resource departments love FreshDirect. It's an amenity to employees, it drives productivity and there's the health and wellness aspect," Rosen reported. "The finance department is also enamored of the program. Most companies reimburse employees for meals costing $15 to $35. In today's tough economic environment, they're loving that their employees are opting for delicious hot meals for $8 that they can get right down the hall. One CEO I presented the program to was so taken with the concept, he asked me what it would cost him! When I told him they wouldn't have to pay anything for the service, he just wanted to know how quickly we could make it happen!"

The vending pilot also validated FreshDirect's decision to accept only card-based cashless payment. "We didn't want to deal with cash collections and accountability, a whole headache we hoped completely to avoid," said Pearl. "We knew that an overwhelming majority of customers paid with credit cards at the cafeterias in sites we served; everyone in Manhattan has a credit or debit card. And the transaction fees are manageable for us; we're not talking about buying a candy bar or soda, but a $6 or $10 meal. We actually price our meals like restaurants, at $5.99 or $9.99, which is another thing our 100% cashless approach allows us to do."


While designing the program, the FreshDirect executives also recognized the need to partner with an experienced local vending operator. Accordingly, they got in touch with Tom and John Murn of Answer Vending (Bellerose, NY), veteran vendors known for successful trailblazing with new technology. The Long Island operation warehouses, installs and repairs the FreshVending machines; FreshDirect fills them and performs first-echelon maintenance and cleaning.

"We fill the machines and control the entire food chain; our drivers are the only people with access to the food," Rosen pointed out. "At the same time, we have the benefit of a vending expert handling all the technical aspects that fall outside our core focus of preparing and delivering fresh food."

This arrangement has worked well, and the reliability of the machines has precluded service problems. "To date, we have had very few alerts for machine malfunctions," Pearl reported. "When we do, our team takes the alert and we dispatch one of our drivers to assess the situation first thing in the morning. If it requires more technical expertise than we possess, we rely on Answer Vending to resolve it in a timely manner."

Other Big Apple vending operators have approached FreshDirect about bringing its program to their clients who request fresh food. "Many operators don't want to manage fresh food, and they tell us that the quality of the fresh food they have access to does not compare to what we offer," said Pearl. "If it's an account that we'll consider, we and the operator schedule a visit, and they introduce us, so they are providing the solution. Everyone wins because we get the lead, the operator secures his relationship by getting the account the program it wants, and the client is happy."

FreshDirect chefs prepare the meals overnight for delivery the next morning, based on up-to-the-minute sales data gathered by InOne's telemetry system; the commissary determines what to produce by viewing this information online.

"Our forecasting is done just hours ahead of preparation, based on very real-time data," Pearl explained. "We assign dedicated trucks and drivers to the vending business; they walk up to a machine in the morning knowing what they need to load, and if anything has to be pulled." Most sites require service two to three times per week, although machines at the highest-volume locations receive daily service.

"The beauty is that you have six types of meals, from Indian through Italian to Mexican and vegetarian. It's like having several restaurants located inside your office building," Rosen enthused. "And it never gets boring; we have 40 to 50 meals in total that we constantly rotate, and we are always developing and launching new seasonal meals."


Each machine holds 15 varieties -- from parmesan meatballs to tofu and shiitake mushroom lo mein -- which FreshDirect rotates throughout the year. To leverage the branding of its heat-and-eat entrees to the greatest extent, FreshDirect worked with Automated Merchandising Systems to optimize the Visi Diners for presenting the meals, which benefit from distinctive visual treatment. They removed one shelf, to accommodate "shelf talkers" boldly displaying each logo.

"Because we launched with five unique branded lines of meals, based on different popular New York City restaurants and chefs, we felt that it was important to call out the differences in those lines and leverage the brands," Pearl explained. "So, partnering with AMS, we created a unique piece of signage that attaches to the bottom of each tray. This allows us enough room to convey the brand message for each shelf.

"We also upgraded the lighting inside the machine to LEDs so that the meals have more of a visual 'pop,'" he added. "Weworked closely on the positioning of the meal in the tray to make sure that it provides the same kind of rich visual experience patrons would get on the FreshDirect website. Lastly, we wrapped the entire machine in large-scale images featuring our luscious food photography. That's meant to excite the eyes and make the experience more mouthwatering even before the customer gets close to the machine."

Glossy four-color menus describing the current selection are available in a holder affixed to the side of the machine; employees are encouraged to bring a copy to their desks for easy reference. And FreshDirect orchestrates a fanfare each time the menu changes, with bold signage on the machine, email blasts, distribution of the new menus to patrons, and occasional sampling sessions.

Marketing has contributed strongly to FreshDirect's success as an online grocer, and is a vital component of its vending program at the point of sale -- and everywhere else, too. The company trumpets the availability of its meals and turns the spotlight on its special promotions -- including a recent 20% discount on EatingWell and Smart & Simple dishes as a "New Year's resolution" special -- by placing posters strategically throughout office hallways and breakrooms, and table-tents in department copier rooms and waiting areas.

FreshDirect insists upon the locations it serves participating actively in continuous promotion. "When we launch a program, we have the client announce it through an internal email. It takes a lot to make it known and generate awareness and trial, and we need their commitment to help," said Pearl. "We inaugurate each vending site with a big sampling session, where we pass out literature about the freshness of our great-tasting meals to let them know they're free of artificial preservatives and trans fats. We have crowds and lines, and people are blown away by what comes out of the vending machine and microwave oven. Employees get very excited about what their company is doing for them."


Workplace patrons appreciate the opportunity to try four or five selections riskfree during the sampling sessions, so they know just what to expect when making their first purchase. FreshDirect also drives trial by providing its new customers with a prepaid card good for one free meal. "This makes it easy for them to take that step from 'Wow, this tastes great' when they sample it to the comfort level of 'I'm getting lunch at the machine today, but there's no risk because the first meal's on FreshDirect.' After that, they're hooked," commented Rosen.

FreshDirect is highly selective in determining where it will place machines. "We put a lot of emphasis on targeting, and we've gotten good at it," Pearl told VT. "A lot of companies want the program, but it's a big investment for us and it has to be the right fit. We're bringing them a valuable amenity, and boosting productivity hugely by making healthy meals available to their employees, not to mention lowering their cost of employee meal reimbursement."

During its test phase, the company determined the basic criteria for an ideal account based on population, the nature of the business and type of employees who work there, and the availability of other meal options nearby. "We have a target for daily sales volume per machine and by location, and we've been pretty good at achieving it," Rosen reported. "During the test, we had to pull some machines that competed too much with the location's cafeteria. In some cases, too, the employees were not willing to make the leap to buying high-quality meals out of a vending machine, or the location was not willing to do its part to promote the program. We also insist that the machine be situated in a high-traffic area. Our success so far has been based on very careful selection of each location."

FreshDirect currently serves a dozen sites through its vending program, and its plans call for substantial growth this year along with extension into new venues. For example, a pilot test is underway in two of Manhattan's most popular fitness centers. "People work out at lunch, and usually scramble to pick up a meal to eat when they get back to the office," Pearl pointed out. "We can save them from scrambling. Or, if they go after work, they can grab a meal from the machine for a quick dinner when they get home."

"Gyms are filled with health-conscious people and our machines are filled with healthy choices," Rosen added. "It's a wonderful solution and looks like a great fit so far."

A workplace feeding program -- developed by a high-visibility service provider in conjunction with a group of prestigious restaurants and a national magazine -- presents opportunities for cross-merchandising and promotion. And FreshDirect is keenly aware of this opportunity, Pearl said. Many approaches are under consideration, but the primary task at present is to perfect the system. "For now, we are just focused on growing our customer base and maintaining our high standards of service and customer satisfaction while meeting our financial objectives," he concluded.