Amazon, the $60 billion e-commerce giant that sells just about everything online, is ready to make a play for the biggest plum of them all: the online grocery business.
The company, which has used its home base of Seattle to test its “AmazonFresh” grocery delivery service for years, could begin rolling out the service to other cities this year, first Los Angeles and then San Francisco, according to Reuters. If all goes according to plan, AmazonFresh could show up in as many as 20 other cities, even some outside the United States, next year.
In a remarkable progression, Amazon has grown from an online bookseller to the world’s largest e-commerce retailer. Along the way, it has expanded into virtually every product category, if not on its own, by acquiring companies like Zappos, the online shoe seller. Amazon already sells a wide range of consumer goods, such as health, beauty and cleaning products, but delivering perishable items brings a whole new level of complexity to its expansion. That’s why Amazon is said to be adding refrigeration equipment to distribution centers outside the Seattle area.[more]
The risk of fresh food delivery is high and the profit margin is low. The acknowledged leader in the market, Peapod, started operating in 1989, but may not have been sustainable were it not for its acquisition in 2000 by Ahold, a Dutch company that owns the Giant, Martin’s and Stop & Shop grocery chains in the US. While the company is national in scope, Peapod only recently entered the lucrative New York City market. It is now engaged in a head-to-head battle with local leader FreshDirect.
Peapod and FreshDirect represent a microcosmic example of what may await AmazonFresh on a much larger scale. Not only will AmazonFresh be competing with Peapod, it will undoubtedly tangle with the one company capable of matching Amazon’s sheer bulk: Walmart.
Amazon and Walmart have already penetrated each other’s worlds, battling along with Google for same-day delivery superiority. Amazon has made inroads into traditional retail, setting up lockers in such stores as Staples and 7-Eleven so customers can pick up their orders. Walmart, meanwhile, has upped its e-commerce capabilities, already generating more than $9 billion annually in online sales. In addition, Walmart is an established national leader in grocery sales.
The $603 billion US grocery business may be just too tasty for Amazon to ignore. For Amazon, it isn’t necessarily about food. “The fear is that grocery is a loss leader and Amazon will make a profit on sales of other products ordered online at the same time,” supermarket analyst Bill Bishop told Reuters. “That’s an awesomely scary prospect for the grocery business.”
Clearly, Amazon’s motive with AmazonFresh is more about long-term strategy than short-term profit. What Amazon is really after, as Bishop suggests, may well be the ability to bundle grocery delivery with other merchandise. As Quartz put it, “Amazon also has the logistical expertise that could help in online groceries where others have failed. And offering fresh produce is one area that Amazon’s competitors in other sectors, like technology, would probably not venture. Amazon would seal its place in the consumer mind as the go to place for everything.”