“I just professed my history,” Fedele says. “Why do they go out of their way to try and besmirch somebody? Typically it’s because of fear.”
Ackerman says FreshDirect now does 25,000 orders per week. Many customers are attracted by the $50 worth of free food that comes with a first order; others by prices that can be 10 to 15 percent lower than neighborhood stores. FreshDirect says it retains about half the customers who try the service, and that the company began turning a profit this January. “We make money doing this. Period. The end,” Ackerman says. “We’ve got lots of money in our bank account. We’re not burning it.”
Yet food-industry veterans who admire FreshDirect are dubious. Even if the company is turning a daily profit, they say, it will be a long time before FreshDirect begins recovering its startup costs, which Fedele admits were north of $60 million. “Remember the old story about the guy who sold stuff for less than he paid for it? He’d make it up in volume!” Arons says. “That’s what I think they’re doing. They have these incredible overhead costs, with trucks and fuel and tolls and towing. I know this business inside and out, and at the prices they’re charging, their story doesn’t make sense to me.”
The company announced in February that Fedele’s responsbilities were being reduced. “Joe is still a large shareholder; he’s on the board,” Ackerman says. “People’s roles change as organizations grow.” Fedele’s version is more pointed. “I think the final words were, ‘You’re fired,’ ” he says. Fedele disagrees with Ackerman’s plans to add national delivery services, and says he’s exploring his legal options. “My lawyers are in discussions,” he says. “If things don’t change, yes, a lawsuit will occur.”
WHOLE FOODS ON ITS COMPETITION: “Our core values dictate that we must satisfy and delight our customers. If it puts people out of business to do that, sorry.”
And Fairway isn’t FreshDirect’s only sworn enemy. John Catsimatidis, who began with one grocery store in 1968, now owns 50 Gristede’s stores. Five years ago, seeing the changes in the supermarket industry outside New York, Catsimatidis began renovating his stores and adding pharmacies, spending $70 million in the process. He claims the strategy is paying off: After losing $11 million in fiscal year 2003, the company’s net loss in the first quarter of this year was “well under half a million.”
From behind a mountain of papers on his desk, in a battered building amid car dealerships on Eleventh Avenue, Catsimatidis discusses his own run-ins with Fedele: When FreshDirect ads claimed its prices were 35 percent lower than Gristede’s, Catsimatidis threatened to sue, and FreshDirect pulled the ads. Five months ago, Gristede’s started its own home-delivery Website. “We don’t project it making a profit,” Catsimatidis says. “We just want to put one more nail in FreshDirect’s coffin.”
As for Whole Foods, Catsimatidis sees hard times for it as well. “The ‘experience’ of shopping there can take you just so far,” he says. “They’re paying $4 million a year in rent at the Coliseum! What happens if we deliver organic food at a lesser price than they do? The other places they’ve gone, they haven’t had any competition. Ninety percent of Gristede’s shoppers come from within a five-block radius of each store. And Whole Foods doesn’t have enough people living in that kind of radius to do well.”
Perhaps. But Whole Foods appears to be creating its own, very wide radius. “We're doing 10 to 20 percent better than we expected at Columbus Circle,” Lannon says. Industry sources translate that into weekly revenues of around $1 million.
In the mid-nineties, just as Fairway and Joe Fedele were beginning their brief, unhappy marriage, Whole Foods was calculating its entry into New York. John Mackey, the company’s co-founder, had started with a small Austin health-food store in 1978. Two years later, he opened the first Whole Foods, stocking a 12,500-square-foot store with local salsas, fresh fish, whole grains, even nutritious dog food. He preached a “team member” system of management, where employees who didn’t carry their weight could be voted off, say, the dairy squad. Pay was based in part on productivity results, and the salaries of all staff, including Mackey, were listed in a book accessible to Whole Foods employees. By 1997, Mackey, riding the natural- and organic-food wave, had 76 stores spread across the country, and cracked $1 billion in revenues. New York was the last frontier.