Amazon Plans Major Move into Grocery Business

Amazon.com Inc is planning to expand in the online grocery business with its new service called ‘AmazonFresh’.

Amazon is now planning to expand its grocery business outside Seattle for the first time, starting with Los Angeles as early as this week and the San Francisco Bay Area later this year, according to the two people who were not authorized to speak publicly. Photo: russianwindow/Flickr

Would you buy your groceries from Amazon? After all, some of us buy practically everything else from the online retailer, so why not food, too?

Now Amazon has a new service called “AmazonFresh” which will be selling groceries online. The giant Internet retailer is said to be prepping a major expansion into the grocery market, planning to offer eggs, strawberries, and everything else in dozens of cities.

While food is a low-margin business, Amazon could outperform similar online grocery services by delivering orders for higher-margin items like electronics at the same time.

The new service AmazonFresh has been tested in Seattle for over five years, and sources claim that the service will be coming to Los Angeles later this week and San Francisco later in 2013.

If those new locations go well, the company may launch AmazonFresh in 20 other urban areas in 2014, including some outside the United States, said one of the people.

Bill Bishop, a prominent supermarket analyst and consultant, said the company was targeting as many as 40 markets, without divulging how he knew of Amazon’s plans.

“Amazon has been testing this for years and now it’s time for them to harvest what they’ve learned by expanding outside Seattle,” said Bishop, chief architect at Brick Meets Click, a consulting firm focused on retail technology.

“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,” he said. “That’s an awesomely scary prospect for the grocery business.”

One of the people familiar with AmazonFresh’s expansion plans said new warehouses will have refrigerated areas for food, but also space nearby to store up to one million general merchandise products, in some cases.

Amazon is searching for new, large markets to enter as the company tries to maintain a growth rate that has fueled a 220 percent surge in its shares over the past five years. The grocery business in the United States, which generated $568 billion in retail sales last year, may be a ripe target, reports Reuters.

However Amazon is not alone in its desire to expand in the online grocery business.

Meanwhile, its current competitor, Wal-Mart, is already testing same-day and next-day delivery of online grocery and general merchandise orders in the San Francisco Bay Area.

“We are ready and able to expand grocery delivery in the U.S. as the market demands,” Wal-Mart spokesman Dan Toporek said.

Roger Davidson, a former grocery executive at Wal-Mart, Whole Foods and Supervalu, said Amazon will struggle to make money from AmazonFresh because fresh produce can easily go bad in storage warehouses and get damaged during delivery – something known as “shrink” in the business.

“Will it work? I would bet against it,” Davidson said. “The reasons these businesses have failed in the past have not gone away.”

Selling fresh fruits and vegetables online is a difficult business that comes with expensive costs, like fuel-hungry refrigerated trucks, which leads to small margins. But Amazon’s move into online groceries isn’t really about making money.

Instead, it is seen as a way of making Amazon’s burgeoning same-day delivery service more cost efficient, informs Food World News.

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