Why Amazon’s turn to real-life groceries is both surprising and yet makes total sense

Shutterstock/ Ljupco Smokovski

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.

You're subscribed! If you like, you can update your settings


Comments have been disabled for this post