Low on groceries? Go on line to Amazon and have fresh
produce delivered to your door.
In its hometown (Seattle), Amazon has been running the
business for nearly six years. The service brings produce, dairy, meat, boxed
groceries and other items in insulated containers direct to customers' doors
during appointed one- or three-hour windows.
Amazon.com Inc. has now begun offering fresh grocery
delivery in its first major market outside of Seattle. They quietly added
metropolitan Los Angeles to their website as a delivery area for Amazon’s AmazonFresh
business, hinting at what could be a broader expansion.
Expanding its grocery delivery business comes with fresh
risks for Amazon, though it has demonstrated a willingness to lose money on new
ventures to gain a foothold. Grocery sales have notoriously thin margins and
it's a crowded market dominated by heavyweights such as Wal-Mart Stores Inc.,
Kroger Co. and Safeway Inc. Additionally, companies like FreshDirect LLC and
Peapod LLC already operate grocery delivery services in major cities including
New York, Chicago and Philadelphia. And grocery deliverer Webvan Group Inc.
remains one of the more spectacular failures of the Internet bubble early last
decade.
The service harkens back to a time when Americans found
fresh milk, bread and eggs delivered each morning to their doorsteps.
Indeed, in Seattle, where the service has expanded over time
to more suburbs, Amazon customers can combine their apple and butter orders
with over 100,000 different Amazon items including videogames, toilet paper and
motor oil.
"Amazon really could use this as a means to drive sales
of general merchandise, which may have better margins than groceries,"
said Matt Nemer, a Wells Fargo analyst. "That's what could really set them
apart from the pure grocery delivery guys—they might not need to make a lot of
money on the groceries themselves."
Amazon charges Seattleites between $8 and $10 for most
deliveries, though orders over $100 can be free. A frequent buyer program,
known as Big Radish, rewards customers with free delivery on orders over $50
for several weeks at a stretch.
Many AmazonFresh items can be delivered the same day they
are ordered. Amazon was an early entrant to the same-day delivery business, following
failed startups such as Kozmo.com Inc.
As Amazon builds more massive warehouses this year in
California and Texas, urban centers such as San Francisco and Dallas-Fort Worth
are likely candidates for expansion of the grocery service. In October, the
company opened a roughly 1 million square foot distribution center in San
Bernardino, Calif., which is just east of Los Angeles, its first such facility
in the state. Two others are under construction east of San Francisco and are
slated to open later this year.
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