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Summary:

More online retailers are making their way into the brick-and-mortar world, and Amazon may have cracked the code by turning to groceries.

Today brought news that one of biggest online retail companies are dipping their toes into IRL shopping: According to Reuters, Amazon is expanding its quietly developed grocery delivery service, AmazonFresh, from its home in Seattle to as many as 20 domestic and international cities by 2014.

The fact that Amazon is taking a shot at turning into a full-fledged grocery business is on its face a little puzzling, considering that the market isn’t doing so well versus the burgeoning online shipping that is right in their wheelhouse. ComScore’s recent analysis of online spending is spectacular, but expected: e-commerce spending has ballooned to $186.2 billion in 2012, up 15% from where it was only a year ago. And Nielsen’s forecast of the retail market in 2016 concludes that online shopping will see the highest growth in market share (by far) across all retail categories — while groceries are expected to lose market share in the next five years.

Yet Amazon’s choice to expand AmazonFresh right now is also incredibly clever, allowing the company to corner a market that has struggled to bridge the online and brick-and-mortar gap. Not only will Amazon have the opportunity to siphon business away from local grocers unable to keep up with specialty orders or the convenience of a right-to-your-door option, but it will be able to overpower slow-growing competitors like Peapod and FreshDirect. And with $13 billion in annual revenue already, Amazon doesn’t necessarily need to service to be successful immediately. It helps that Amazon has been experimenting with same-day shipping for the last few years, so the infrastructure just needs to be tweaked to make it work full-time.

Perhaps more importantly, it doesn’t seem like any other major e-commerce portal is looking at groceries intently enough to become important competition. While eBay is also getting further in the real-life retail space, it’s choosing instead to enter through carefully constructed partnerships, like the one recently developed to bring digital window-shopping experiences to New York for Kate Spade. Other big e-tailers have made an investment in storefronts (Apple chief among them), but none quite have the resources in local warehouse space and stock to reach Amazon’s proportions.

The grocery industry certainly isn’t the most high-profile or flashy sector, but with its new foray into delivery, it’s not hard to see Amazon dominating that slice of e-commerce, too.

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  1. I’m surprised they’re expanding the program, because by Amazon standards they are not particularly good at providing groceries. Lots of stuff out of stock, little variety, not great prices, etc. It’s not the Amazon experience at all.

    I was spoiled years ago by Homegrocer.com, which was great, and then Webvan, which was okay, and Albertsons, which was not very good. Amazon is probably the worst of the three, and I say that even though love their other services. I am not anti-Amazon in any way.

  2. It really isn’t that surprising when you consider that the companies that compete with Amazon (Wal-Mart, Target) offer groceries. This is an attempt to keep the customer rather than asking them to split purchases with your competitor.

  3. Henry Robinson Wednesday, June 5, 2013

    Ever since Webvan, I have questioned the logic of massive online grocery sales. Wouldn’t it be simpler for the local grocer to hire a delivery boy, and tack on a delivery fee to each order?

    Local stores, at least in the Bay Area, do a pretty good job in carrying what consumers demand (Organic, Cruelty Free, Sustainably Grown, Local, Non-GMO, hormone free, antibiotic free, grass fed, free range meat anyone?)

    Plus prices change frequently in the actual store. Produce gets really cheap when nearing the expiration date, which is also when they are the most delicious.

    1. Locally Safeway does that, and Albertsons used to (not sure about the present).

      Homegrocer.com was good at the things you mention in the second paragraph. They had more variety than I’ve found at any store.

  4. 13 billion is much closer to quarterly revenue for Amazon, not annual. Really only strengthens your argument, but I thought it important to point out the error.

  5. Two days ago I read a story that spoke of Costco’s continued gains with value added services like gasoline driving people into their stores. Amazon is following in the same footsteps. Groceries is a difficult market, as people like to look, touch, and inspect their lettuce. Rolling out in Los Angeles next, L.A. is going to be a difficult market in that everyone drives. Literally everyone. Everywhere. All the time. Especially on the 405. So deliveries will be plagued with high gas prices and traffic. The idea of getting something at your door as opposed to driving is tempting, and Amazon has already proven its system valuable. AmazonFresh will have a difficult time with grocer staples like Ralphs, Pavilions and Whole Foods, big boxes like Costco, and retailers such as Target. This will be very interesting to see how it plays out.

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