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FreshDirect Expansion Tests Appetite for Online Grocers

FreshDirect is seeking up to $100 million to open in a new (but yet unnamed) market.
April 13, 2010

NEW YORK - FreshDirect, a Manhattan online grocer, is looking to raise $100 million to open in a yet-to-be-named market, Reuters reports.

Founded more than six years ago, the profitable company has recently expanded into Connecticut and the suburbs of New York.

Its move has caught the attention of grocery chains like Kroger and Safeway, which are looking to expand while facing stiff competition from Walmart, according to analysts.

"It's a challenge to make money in that business," said Bill Bishop, chairman of grocery consultancy Willard Bishop.

"All the big name grocers did get into it and then they got out of it. They're going to let another company be the guinea pig," said supermarket consultant David Livingston.

FreshDirect currently serves more than 600,000 customers in New York City��s five boroughs, parts of New Jersey, and Connecticut, and it is looking to add an entirely new market.

"We're looking to raise between $75 and $100 million," said FreshDirect CEO Rick Braddock.

Online grocers represent a small fraction of food sales in the United States. By contrast, Britain��s�� online grocery industry is robust and attributed in part to its higher population density. Some analysts are counting on FreshDirect to show U.S. grocery giants that online food sales can work.

"If FreshDirect gets the money to open another market and proves they're not a one-hit wonder, I think you'll see everyone jumping into the space," said Jim Prevor, editor of industry newsletter Perishablepundit.com.

Braddock said that FreshDirect is profitable and has margins that outpace the industry. It expects 2010 revenue to grow to $300 million from $250 million in 2009. Braddock said that the company is nearly at a 10 percent EBITDA (earnings before interest, taxes, depreciation and amortization) margin. Kroger reported a 6.2 percent EBITDA margin in 2009.