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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