How FreshDirect delivers 100,000 grocery orders across NYC each week

With stay-at-home orders in place in New York City beginning in March, e-grocer FreshDirect saw an unprecedented spike in demand for online grocery deliveries.
The company now packs and delivers 100,000 grocery boxes each week, cutting out about three steps from the normal grocery-store supply chain.
Business Insider visited FreshDirect's Bronx, New York, warehouse, the size of 11 football fields, to see how it's all done.
Using an advanced AI system, temperature controls, nine miles of conveyor belt, and a fleet of delivery trucks, the company delivers 3 million grocery items a week.
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Following is a transcript of the video.

Narrator: This company packs and delivers 100,000 grocery orders to hungry New Yorkers every week. FreshDirect's process of shipping highly customized grocery boxes straight to customers' doors cuts the grocery supply chain in half. And it all happens from this facility in the Bronx, the size of 11 football fields.

Tim Knoll, Chief Operating Officer, FreshDirect: We're a super-high-velocity grocery store. So we're receiving lots of food every day. It's coming in, going right back out.

Narrator: But getting a box like this delivered on time to the right door is a logistical nightmare.

David McInerney, Co-Founder & CEO, FreshDirect: When you think about millions of items that are coming in and going out of this building in a single week, there's a lot of complexity around that.

Narrator: Normally, it takes a team of 3,200 people and a sophisticated AI system to get it all done. But by March, the company could barely keep up with a wild spike in orders.

John Dozier, Delivery Driver, FreshDirect: In the pandemic, a lot of people are just kind of scared to go outside. We help eliminate the scariness.

Narrator: We visited the FreshDirect facility in early September to see how the company manages on-time delivery in the face of pandemic demand.

Knoll: Today is actually the busiest day we'll have had since January. So, as people return to school and people return back home from their vacations from the summer, they tend to stock up heavily.

Narrator: FreshDirect began delivering groceries to New Yorkers back in 2002. At the time, the model was revolutionary. FreshDirect's supply chain is just three steps.

McInerney: From the farm into our building directly to the consumer's house.

Narrator: The new model cuts out three to four steps from the normal grocery-store supply chain. Customers can fill carts and order online or through the app. Just like a regular grocery store, FreshDirect sells everything from toothpaste and toilet paper to produce, fresh meats, and prepared meals.

Scott Crawford, Chief Merchandising Officer, FreshDirect: If you think about a normal produce selection, you might find 200 or 300 different types of produces. We have anywhere from 400 to 600, depending on the time of the year.

Knoll: About 65% of our product is what we consider fresh, be it meat, seafood, or deli or from our kitchen or fresh produces and cheeses and such.

Narrator: Today, FreshDirect sources from over 100 partner farms across the world. All that food comes into FreshDirect's headquarters here in the Bronx.

Knoll: Today we have about 120 trucks inbound.

Narrator: Over a million pounds of produce come through the receiving area each week.

Knoll: From Hepworth Farms, we're getting everything from these cherry tomatoes that you saw to these beefsteaks to these tomatillos.

Crawford: This load of fresh berries will be in the building for less than 24 hours.

Narrator: First, the incoming inventory is checked for quality and quantity and then put into the tracking system.

Knoll: So, you can see he's printing out these labels, and that captured all that information on that barcode. And what happens from here is, we're actually directing the food to where it has to go. So in that system, it knows those tomatoes, what place they have to go within the warehouse.

Narrator: Next, the new inventory is moved to all the appropriate fridges or storage areas. Pantry and shelf-stable goods are forklifted onto these giant inventory walls. Some goods are moved through this facility in as little as an hour and a half.

Knoll: You can actually read the dates on those labels, and you'll see they're all about a week or less old. What's insane is the speed at which it moves.

Narrator: Fresh produce ends up in temperature-controlled fridges. There are 38 different temperature zones throughout this facility.

Knoll: For example, bananas, they like about 65 degrees. They like a certain amount of humidity.

Narrator: A traditional grocery store is built with temperatures that make human shoppers happy.

McInerney: You, as a consumer, could walk into a bricks-and-mortar grocery store in the middle of the summer in shorts and flip-flops and be totally comfortable. It's not good for the food because it detracts from the shelf life. There's no food on display here. All that food is tucked away, on ice, in the proper temperature, and is only taken out when it's needed. So we just have less waste as opposed to a bricks-and-mortar store.

Narrator: FreshDirect says catering to a food's ideal climate extends its shelf life up to seven days beyond a traditional grocery store's.

Knoll: We have a room that's at 55 degrees for things like tomatoes. We have a room at 45 degrees for things like onions and potatoes. They like colder temperatures.

Narrator: There's a separate inventory room for meat and even fish.

Knoll: This fish is probably two days out of the water, and it's here from Nova Scotia. So our fishermen, they actually go out, these are harpoon-caught swordfish.

Crawford: 368 pounds.

Worker: Yeah, it's fat.

Narrator: The supply chain has such a tight turnaround that a customer could place an order for a fish in, say, Alaska, and within a day or two it'll be fished out and flown to this facility.

McInerney: There are times where we could sell fish to a consumer five days out that's not actually landed in a boat yet.

Narrator: Once all the items are inventoried, they don't sit around long before they're picked up and tugged to one of 12 kitchens. Fruits and veggies for precut packages are chopped in one room. Upstairs, the bakery starts buzzing in the early morning. Downstairs...

Orlando Farino: We could do anywhere from 13,000 to 18,000 finished goods per day.

Narrator: These chefs make more than 500 different prepared dishes. In the cold room, they're pulling together shrimp cocktails, ravioli, cheese boards, and salads. In the hot room, it's salmon, stews, chicken fingers, and one of the most popular items, rotisserie chicken. Down the hall, fish are filleted.

Crawford: Yeah, Juvie actually also has some black cod right there, also known as butterfish or sablefish, out of British Columbia. Juvie, how many years cutting fish?

Juvenal Ramirez: 28 years.

Crawford: On a promo, he'll cut close to 1,000 pounds of fish a day.

Narrator: And here, over 250 cuts of meat are butchered a day. They're sliced right as orders come in to help cut down on food waste. But when COVID-19 hit, meat orders spiked so much, the team had to lessen the variety of meat cuts until they could catch up with the demand.

Lovando Belcher: We took a look at that volume and said, "OK, these are the steaks that we have the most volume on, these are the steaks that we're gonna feature."

Narrator: Once workers finish preparing all the food, the real work begins: pulling all the items for an order together. The average order FreshDirect gets is about 30 items, which might not sound like a lot, but...

McInerney: On a relatively busy week now, we're delivering to north of 100,000 houses, and if each of those houses has 30 items in their delivery, we're moving 3 million different food items out of, in essence, one mega facility.

Narrator: Each order that comes in gets assigned a box. To make sure all 30 items end up in the right box, the company has been perfecting an AI system for nearly two decades. The system tracks when each item comes in and the expiration date. Then it finds the most efficient route along nine miles of conveyor belts to move the box to all the right pick stations. Each pick station has one worker and a selection of products the worker grabs from and places in the corresponding box. This picker has pantry goods and toiletries at her station.

Knoll: So it tells her what item, she'll scan it, it'll verify it's the right item, she'll confirm that she put it in the customer's bag, and now it'll go to the next person. But you can see the speed with which she can pick these items. Rather than walking around a store all day, the work comes to her.

Narrator: But it isn't set up like a normal grocery store, where all the, say, tomato sauces are together. To even out the workload, high-ticket items, like olive oil, are paired with lower-ticket items, like organic baby food, at one pick station.

Knoll: We call it slotting the building. So the fewer stops that we make in our store with our totes as they go through, the more efficient we can be.

Narrator: The goods are also grouped at pick stations based on affinity.

Crawford: So, the people that would buy this tea have an affinity to buying other products that are here, such as Long Drink or the dry rosé cider.

Narrator: After a worker picks the right item, they hit a green button, and the order box zooms off to the next station. After visiting sometimes dozens of pick stations, an order can finally be complete. It goes through one last check before being loaded on a FreshDirect truck.

Crawford: So, as soon as the product gets here, our goal is to have it here less than two days and back out the door.

Knoll: So there's literally thousands and thousands of bags that go to shipping every hour. On the outbound side, there's over 400 trucks going out with deliveries.

Narrator: Those trucks run 2,000 routes each week.

Dozier: We got a refrigerator in the back of the truck, so everything is already staying cold.

Narrator: John's a 12-year veteran driver for FreshDirect. He typically does routes around New York City but sometimes takes deliveries all the way out to the Hamptons.

Dozier: So, I start at 4:00, and coming from the Hamptons, I'm getting back at, like, 4:00, 4:30. So the traffic coming back is ridiculous.

Narrator: The pandemic caused an 800% surge in new website traffic and increased demand for FreshDirect. But orders aren't just coming in from New Yorkers worried about leaving their apartments. A surprising amount of demand came from New Yorkers who fled to the suburbs.

McInerney: That's been a new area of growth for us.

Narrator: Even as demand spread out, FreshDirect's hub-and-spoke model allowed the company to quickly ramp up delivery to more coverage zones. FreshDirect expanded to New Jersey, Connecticut, Westchester County, and Long Island. By the end of 2020, the company plans to add 1,000 new workers to match demand. FreshDirect's success is indicative of a larger trend in shopping habits. In 2019, e-grocers held 3.4% of the grocery market. And in 2020, it's expected to hit 10.2%.

McInerney: Here we are in September, looking at probably the biggest growth we've ever seen, and just each month it gets bigger. COVID-19 opened up the floodgates for online grocery. And I don't think we'll ever go back.

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