Amazon takes on the supermarkets

E-commerce giant Amazon has announced that it is piloting a fresh grocery delivery programme. The initial service will deliver to consumers in the Seattle suburb of Mercer Island and is expected to include a pickup service in the suburbs of Bellevue and Kirkland. Branded AmazonFresh, the pilot is available at fresh.amazon.com and is an extension of the gourmet food business the company started in 2003 and the dry grocery service that was launched last summer.

“It's just starting out, and it's very small. We are in the early stage beta test, and it's a better way to serve our grocery customers,” said Craig Berman, an Amazon spokesman. “We are offering a great selection and great prices and a really convenient experience,” he added. AmazonFresh is likely to offer items found in a typical grocery store, including organic and non-organic fruits and vegetables, dairy products, ice cream, meat, fish, health and personal care items, cereal, crisps and soda.


Customers register and then order online and can have the products delivered the next day during a one hour time slot of their choosing. In addition, a pre-dawn delivery option is available with orders left in temperature-controlled totes delivered to doorsteps. Finally, the service also allows customers to collect their order from a local pick-up location. This option has no minimum order and promises a same-day service. Importantly, for the first time in its history, the company will not rely on a third party delivery service; instead there will be around 12 AmazonFresh refrigerated trucks.

Not uncharted waters

This is not the first time that the company has launched a fresh online grocery delivery programme. In 1999, Amazon invested around USD42.5 million in HomeGrocer.com. The business was largely unsuccessful and was sold to Webvan in July 2001. Amazon is also thought to have pumped some USD60 million into Kozmo.com, a service which saw drivers on scooters and bicycles deliver soft drinks, snacks and movies. The service also closed down in 2001, with losses reported at USD280 million.

This time, however, the company has entered the grocery market in stages and at a gradual pace. It first started to offer gourmet food in 2003 before expanding into ambient grocery deliveries in the summer of 2006. The success of these two concepts has clearly fuelled the company’s desire to enter into fresh foods.

Entry into the delivery of fresh groceries will start off at a slow pace. The e-commerce retailer has decided to test the service on Mercer Island as it is an area it is very familiar with and has a compact geographic location. Berman said: “This is a great location for starting small. Starting in our backyard affords us the opportunity to evaluate how it's going.” The company is likely to expand beyond Mercer Island once it can “provide every customer with the experience they will demand”.

A whole new ball game

Amazon’s move into dry groceries last summer caused excitement, and perhaps a tinge of fear, as it indicated that competition truly can come in all shapes and sizes. However, it is fair to say that most bricks-and-mortar retailers were not losing sleep over an e-commerce facility that sold just 14,000 items all of which were non-perishable (the average US supermarket carries more than three times that number of products).

However, now Amazon has ventured into fresh, the online retailer is entering a whole new ball game. Whereas the company was able to capitalise on its existing distribution network with dry groceries, Amazon will now have to invest in its own refrigerated trucks and distribute its perishable products on a more frequent basis. Food as a whole is a much riskier business given the lower margins (especially when compared to Amazon’s other categories) and fierce price competition from both bricks-and-mortar stores and other online grocers.

The online grocery business in the US is still at an embryonic stage, especially when compared to Europe. This is a reflection of lower population densities and more diverse shopping habits. Despite 172 million US consumers having access to the internet, only 6% of shoppers have purchased groceries online in the past year (according to the Food Marketing Institute). That said, 80% of shoppers have purchased other items on the web in the past year, which could present a huge opportunity for Amazon if it is able to convert existing shoppers to its grocery service.

From a brand elasticity perspective, there is a risk of Amazon spreading itself too thin. While the one-stop shop has long been engrained in American shopping culture, an online one-stop shop is an entirely different venture and one that has not yet been tested in the US. Can organic bananas be sold alongside Harry Potter books and Prada handbags? Amazon will soon find out.

Source : http://www.planetretail.net/Default.aspx?SessionID=175718480