Amazon Invading the Grocery Business

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Yes, you are absolutely right, Amazon.com Inc.  is invading the grocery business.  They will begin to deliver fresh, perishable items outside, Seattle, their homebase.  First stop is Los Angeles and early next year will be at San Francisco Bay.

This kind of business has been going on in Seattle for the last six years known as AmazonFresh.  The online service business brings produce, dairy, meat, boxed groceries and other items in insulated containers delivered right to the customer’s doorsteps.  The concept is like a blast  from the past when Americans received their newspapers, milk and eggs right at the very front of their doorsteps.

The question most of us will raise would be, Why enter into this kind of business?  We know for a fact that grocery business has a low profit margin.  Coupled also by the giants in retailing business likeWal-Mart Stores Inc., Kroger Co. and Safeway Inc.  Although as mentioned earlier that it has a thin profit margin, according to Reuters, it  believes that Amazon.com is taking a great share of the pie as it invades and explore the $5.68 billion market. But according to the AmazonFresh Chief Executive Jeff Bezoz that it wasn’t  yet a moneymaker but, “they have made progress on the economics over the last year.”  Amazon believes that the only way to make inroads into the space is the near instant delivery of food items, both perishable and non-perishable, Reuters added.

Back to Amazon. Com’s homebase.  In Seattle, customers place their grocery order online or through mobile application and select delivery date and time.  Amazon completes these orders by using its fleet of delivery vans and delivered directly to the customers.  Amazon is charging the delivery between $8 and $10 and free delivery for purchases amounting to more that $100.  But one drawback  in  doing this business is called the “shrink”.  It is a term coined for items spoils too quickly and other items got to be damaged easily said Roger Davidson, a former executive of Wal-Mart as told to Greg Bensinger of  The Wall Street Journal.

Bensinger added in his report that Amazon is now building large warehouses this year in California and Texas.  In October last year, Amazon opened an estimated 1 million square foot distribution center in San Bernardino, California.  Two others are under construction east of San Francisco slated to open this year.

As told to Reuters, Bill Bishop, a supermarket analyst and consultant, said that Amazon is targeting as many as 40 markets.  Amazon is looking for a large markets to enter as it tries to maintain a growth rate that has surged to 220 percent in its shares for the past five years.  So, they felt that the grocery online business may be a ripe target.

This expansion is a potential threat to other grocery chains such as Kroger Co. Safeway Inc and Whole Foods Market, as well as Wal-Mart Stores Inc and Target Corp. Reuters added.   With these developments, other giants in retailing also plan to expand their online delivery system.

According to the result of one study, it is thought that if online stores also include higher-margin general merchandise such as tablets, cellphones, then AmazonFresh, who is invading the grocery business, has a chance of profitability, said Manfred Bluemel who was formerly head of the market research worldwide at Amazon.  “ Grocery is a frequency business.  If Amazon Can deliver to consumers’ homes two to three times a wekk, they can up-sell other items,” Bluemel further added.

Written for The Guardian Express:  Anthony P. Derayunan

 

 

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