Hitched To A Comet

Hitched to a comet; Suppliers to FreshDirect get sales, branding boost.(News)(Just Bagels grows)

Crain's New York Business Feb 13 , 2006

Byline: Lisa Fickenscher

For more than a decade, Bronx-based Just Bagels was just another anonymous maker of sesame seed, plain and egg bagels for Starbucks and other upscale outlets.

That began to change in late 2003, when the baker agreed to supply a fledgling grocer that had big plans. It was FreshDirect, and its ambition was to make a name not only for itself, but also for its suppliers.

"They persuaded me to put our name on the package,'' says Cliff Nordquist, an owner of the $10 million Just Bagels. "And that put us on the map in New York.''

Today, Mr. Nordquist's company, along with a dozen or so other local small businesses, are in the slipstream of FreshDirect's meteoric rise from a startup to a $200 million-a-year business. Tapping into the near cult following of the Web grocer, which makes about 5,000 deliveries a

day, the companies have seen revenues surge as they break into new markets across the city. Through FreshDirect, some have also gained something that they never tried to develop: a marketable brand.

Just Bagels now sells FreshDirect $500,000 worth of frozen items a year, an average of 18,000 bagels a week. Likewise, sparkling-juice maker Fizzie Lizzie says FreshDirect accounted for a tenth of its $1 million in sales last year.

Branding is everything

by urging providers, no matter how small, to put their name on their products, FreshDirect has also helped outfits like Just Bagels and Moveable Feast, a Moonachie, N.J.-based purveyor of smoked fish, to establish their own reputations--and fans.

The exposure has paid off big-time for Moveable Feast, whose products carry the Chef Alain label. Owner Alain Quirin says his first break came when several FreshDirect customers lobbied a store in their Upper East Side neighborhood to carry the brand.

Other stores have followed suit, but FreshDirect remains Mr. Quirin's largest buyer, accounting for a full 20% of his annual sales of $1 million.

Similarly, Mr. Nordquist credits FreshDirect for helping Just Bagels land 10 new distribution contracts. "I learned that branding is everything,'' he says. "In the beginning, all I wanted to do was sell them my bagels.'' Now that the name is well known, the owners are considering opening their first store.

FreshDirect has provided others with a rare opportunity to dramatically expand their geographic reach. For example, Fizzie Lizzie's major base was always lower Manhattan, though it did distribute elsewhere. Now it has regular customers throughout FreshDirect's footprint, which includes three boroughs, Westchester County, Southampton and parts of New Jersey.

The gains racked up by Manhattan-based wine store chain Best Cellars have been even more compelling. The company specializes in bottles priced at under $15 and operates locations in six states. Revenues from Best Cellars' FreshDirect business have eclipsed those of its nine-year-old store on Lexington Avenue--at the same time that the exposure has helped the retailer reach new customers.

"Some [FreshDirect] customers come to our store because they're curious about it,'' says Best Cellars co-owner Josh Wesson. "FreshDirect has given us a platform to merchandise all over New York.''

Life as a FreshDirect supplier also has a downside, however. The grocer is an unusually demanding customer, insisting on rock-bottom pricing, though the suppliers say the relationship is profitable.

Add-on effects

"they sell their products to us for less than they would to anyone else,'' says Ken Blanchette, vice president of purchasing for FreshDirect. "The tradeoff is that we help them promote their brands.''

Selling wine from Best Cellars' own shelves is far more lucrative than selling through FreshDirect, but Mr. Wesson insists that the partnership is a moneymaker.

"These are incremental sales that we ordinarily wouldn't have,'' he says.

The huge video screen atop FreshDirect's building, seen by thousands of daily commuters on the Long Island Expressway, also helps. The grocer regularly puts the names of its local suppliers up in lights there, giving them undreamed-of advertising. Promotions on FreshDirect's Web site offer the companies additional coverage.

Mr. Nordquist sums it up this way: "We deliver in the middle of the night. No one knew Just Bagels. FreshDirect gave us fame.''

Comments? LFickenscher@crain.com

CAPTION(S):

Best Cellars co-owners Dan Dixon (left) and Josh Wesson have reached new customers for their retail stores.