New Malden turns to New York

Morrisons’ acquisition of a stake in New York online grocer FreshDirect came as a bolt from the blue.

For £32m, an easily digestible sum, Morrisons gets 10% of the business and will be able to learn about ecommerce as it prepares to launch its own online business in the UK.

Sounds good, but is FreshDirect the ecommerce paragon it has been painted? Morrisons boss Dalton Philips described the etailer as “a highly successful and profitable food retailer with a track record of terrific customer service”.

Highly successful? Little more than three years ago it was in crisis. A clampdown on employment of illegal immigrants resulted in the retailer losing about 15% of its workforce almost overnight atone of the busiest times of the year. At the same time, and partly as a result presumably, standards of service and availability slumped and customers were alienated.

That’s when chairman Richard Braddock took over as chief executive to sort things out. He did, and that’s testament to the skills inside the business. But he admits it was only at the beginning of 2010 that he thought service had been “fixed”.

As for profitability it’s only in the last year or two that FreshDirect, founded in 1999, has started making money. The need to invest in ecommerce businesses early, and often for years, to build them is widely accepted but compare the FreshDirect experience to that of e-grocers in the UK and you wonder how much more advanced it can be.

FreshDirect has been openly in the market for new investment for some time. Braddock talked about it last June in a Forbes interview. Is there any reason why the stake Morrisons has taken was not snapped up by a US investor?

And all that’s before you get around to asking whether what works in New York, with its deli-style food retail offer, can be replicated in New Malden.

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