A significant roll-out is being planned by Amazon.com Inc, of a grocery business online which has been developing pretty quietly for years, aiming at one of biggest retail sectors that are still to get upended by the e-commerce, as according to 2 people who are familiar with this situation.
Though food is business of low-margin, Amazon can outperform similar grocery services online by having the orders delivered for items that are high margin, for instance, electronics, on one time.
Someone familiar with the expansion plans of AmazonFresh said that the new warehouses would have the refrigerated areas reserved for food and also space close to it to store around 1M products of general merchandise, in some of the cases.
This company has tested AmazonFresh in the hometown Seattle for minimum 5 years, delivering product which are fresh like meat, strawberries and eggs with its trucks’ fleet.
Amazon is planning nowadays to have its business of grocery outside Seattle first time, taking start with Los Angeles this week as well as San Francisco Bay Area in this year, later, as according to 2 people who weren’t authorized to publicly talk.
If these new locations turn out to be well, company might launch in twenty urban areas AmazonFresh in the year 2014, also including some out of US, one of them said.
A prominent consultant and analyst of supermarket, Bill Bishop, said that company was aiming at maximum 40 markets.A spokeswoman of Amazon didn’t respond to the request for a comment this Tuesday.
New and large markets are being searched by Amazon to enter since the company is trying to maintain growth rate which has fueled 220% surge in the shares over past 5 years. The business of grocery in US which generated about $568bn in the retail sales the previous year might be ripe target.
Expansion plans of Amazon are potential threat for grocery chains like Whole Foods Market, Safeway Inc and Kroger Co, along with retailers of general-merchandise like Target Corp and Wal-Mart Stores Inc, which, too, sell many groceries.
A chief architect, Bishop, at Brick Meets Click, said that Amazon is testing this from years and this is for them the time to harvest all that they learned through expansion outside Seattle. He said that it is feared that grocery tends to be loss leader while Amazon would make profit on the sales of the other products which are online ordered at one time.
A successful foray in the groceries can also help to underwrite development of delivery service which is broad-based and employing the Amazon trucks for delivering to homes directly, that could’ve implications for FedEx, UPS as well as other companies for package delivery which currently are shipping goods for Amazon.
Still, the groceries have proved to be a very difficult sector for the retailers online for cracking. A richly funded start-up of the era dot-com, Webvan, was fantastic failure since cost of having the delivery infrastructure and warehouse proved to be overwhelming.
A grocery executive previously at Supervalu and Wal-Mart, Roger Davidson, said that Amazon will strive to earn some money through AmazonFresh as fresh produce could easily expire go out-of-date in the storage warehouses and could get damaged while being delivered.
Davidson said that he would bet against the fact that it would work as the reasons due to which these businesses in past failed haven’t gone away.
Next-day and same-day online grocery delivery is being tested by Wal-Mart as well as in San Francisco Bay Area, orders for general merchandise and in Britain, delivery business for grocery.
A Wal-Mart spokesman said that they are all set to expand the delivery of grocery in US according to market demands.
Food is delivered to offices and homes by FreshDirect in some New York City parts and it is also trying to widen its services in Bronx.
On its own website, Peapod says that it is largest grocer at Internet in US, delivering over 23M orders in 24 markets.
According to Davidson, who has also worked with Peapod at Ahold USA during stint, said that Peapod has struggled much to earn the money for its existence mostly. Though, now he thinks that it turns only small profit because of efficiencies of supply chain, density of population in Chicago and also the connection it has with mortar and brick stores on east coast.
A strategy is being favored by Davidson, which he calls “Click and Connect” which is in use by a pharmacy and food chain on US’ East Coast, Harris Teeter. Food is ordered online by the customers and they choose one time to have the produce picked from specific areas outside stores of company. There is service fee of $4.95 for this.
It isn’t clear whether in Seattle, AmazonFresh is profitable as Amazon doesn’t reveal the results from business.
Jeff Bezos, the Chief Executive at Amazon was asked during annual meeting of shareholders of company last month regarding business and he said that team had been much successful on economics in the previous year.
Zeitgeist Research’s Manfred Bluemel, head of worldwide market research at Amazon till late 2010, said that if the online orders include general merchandise at high-margin, like digital cameras, it is then that AmazonFresh has chance of profitability,
he also said that expansion if AmazonFresh will probably focus on the areas in which it already offers delivery on same-day, or might do that soon.
Same-day delivery is offered in many cities that includes New York, Chicago and Washington D.C., and from the previous year, company is building distribution warehouses which are new and on outskirts of San Francisco Bay Areas and Los Angeles.