Amazon Expands Grocery Delivery Service

Discussion
Sep 25, 2009
George Anderson

By George Anderson

Amazon.com is expanding its Amazon Fresh grocery delivery business to the entire Seattle area over the next three months. 

The company, which began testing home delivery of groceries to a small number of zip codes in the area in 2007, requires a minimum $30 purchase and charges a $5 fee for orders under $75.

Doug Herrington, vice president of consumables for Amazon, told Bloomberg, "We have a lot of confidence in the long-term economics. For a significant portion of the population, they’re going to find that the convenience, selection and pricing of online grocery shopping is going to be really compelling."

Discussion Questions: What advantages or disadvantages does Amazon have moving into the home delivery grocery business? Is there anything specific you can point to that makes you think Amazon has figured out how to succeed where others have failed?

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13 Comments on "Amazon Expands Grocery Delivery Service"


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Paula Rosenblum
Guest
11 years 7 months ago

There’s too much missing from this story for me to draw a lot of conclusions. We know what the selling channel is, but we don’t know the fulfillment site, the number of trucks, delivery radius, etc. etc. etc.

Grocery delivery is one of those things that everyone wants, but no one has really figured out how to make money on. It’s all about delivery costs.

Grocery delivery is even harder than furniture delivery…it’s costly until you reach some kind of critical mass around delivery density.

Obviously this is just a first step, executed close to home so that it can be closely monitored. As a consumer I’d love to have a lot of fresh and even non-perishable items delivered to me…but as a retailer, it’s hard to see where the money is.

Doug Stephens
Guest
Doug Stephens
11 years 7 months ago

I think Amazon is banking on two things:

1. An aging population that is comfortable online, and for whom grocery shopping will become increasingly laborious.

2. Growth in the number of people who are working from home offices and therefore not conveniently passing by a local grocery store on the way home from work.

If these are some of their base assumptions, I think they’re correct. I don’t think however, that this will be an overnight success. It’s a proposition that will mature with the population.

David Dorf
Guest
11 years 7 months ago

I don’t see any advantage for Amazon over a traditional grocery chain, so I can’t figure out why they’d want to be in that business. Instead, they should focus on non-perishables like Alice does. That business model seems better aligned with Amazon’s existing distribution.

Ben Sprecher
Guest
Ben Sprecher
11 years 7 months ago
Paula is right–the economics of grocery delivery ultimately comes down to customer density and delivery costs (i.e., the “Last Mile” problem). This is a nut that any serious player–Amazon included–must crack to make a viable business. Of course, unlike the WebVans of the world, Amazon can simply copy or extend its existing infrastructure for many parts of the business. It has already figured out how to do warehouse logistics, web shopping interface design, scalable systems architecture, supply-chain management, and a host of other pieces of the puzzle. The only dragons left to slay are perishables management and delivery logistics. Another key advantage Amazon brings is that they are masters of the cross-sell, up-sell, and individually-targeted marketing. The “people who bought X also bought Y…” notices that Amazon provides translate into real dollars for them, and their collaborative filtering algorithms (in non geek-speak: the way they predict what might appeal to one shopper from the past behavior of other shoppers) are considered–along with Netflix’s–to be the best in the world. Given that they carry the largest… Read more »
Marge Laney
Guest
11 years 7 months ago

No, actually, I think they have less of a chance of making a go of it than does a local grocer, due to their size. The idea of trying to straighten out a mistake with my perishable groceries with a customer service rep in some call center doesn’t excite me. Customer service from India anyone?

As far as online grocery in general is concerned, there was a discussion about this awhile back and I think the general consensus was that the center of the store lends itself to online shopping where produce and meat do not. People still want to have a good look at produce and meat before they buy. There are also huge fulfillment issues around cost and delivery; can the average person stay at home waiting possibly for hours for their turn for delivery? Sounds like it could turn into a weekly round of waiting for the repairman; not a pleasant thought.

Matt Hahn
Guest
Matt Hahn
11 years 7 months ago

Grocery delivery on a scale like Amazon’s is a tough nut to crack. Though the company has a great distribution model, groceries are very different from books and Kindles. I would be interested to see how this test has impacted sales of certain items. Grocery shopping can be very impulsive and encompasses a large variety of items; Bakery, Deli, etc, and ordering online changes the consumer mentality. They may actually spend less on groceries than before because they’re not adding random items while walking down the aisle or at checkout. The average family probably spends more than $75 at a time (or will wait until they need to before ordering online) so does that mean free delivery for most consumers?

I would certainly like to understand the model more to see how it can be profitable for Amazon. Maybe getting people to think of Amazon as their one-stop shopping for all products is reason enough?

Eliott Olson
Guest
Eliott Olson
11 years 7 months ago

The future is always hard to predict because of unintended consequences. Cap & Trade might drive up the cost of energy so much that the refrigerated and frozen sections of a supermarket become uneconomical and favor distribution from a central warehouse. On the other hand, the cost of petrol will also skyrocket, so it won’t be economical to operate all of those delivery trucks.

Perhaps with rising energy costs to prevent global warming and the high inflation that is sure to come with our massive debt the Government should subsidize the supermarkets so that they can at least distribute rice, beans, oil and a few greens to us. I am getting indigestion thinking about the future. I am going to my doctor while I still have one.

Steven Johnson
Guest
11 years 7 months ago

The Halo from Fresh quality food will propel Amazon to the next level! The level is “Top Of Mind” daily! That works? Watch that next steps will be Grocerant food, ready-to-eat, better-for-you meals delivered by Amazon!

Herb Sorensen
Guest
11 years 7 months ago
First, it is important to clearly distinguish the three components of a retail sale: the mental part–the meeting of the minds; the physical delivery; the transfer of money. Surely no one thinks Amazon might be inadequate on handling the money, so the commentariat always focuses on the physical delivery. There is more behind that than the local neighborhood “warehouse/store” competing with home delivery. The piece that is missing from all this is the SELLING part, and I’m not referring to the order-taking role of the typical retailer running a self-service bricks-and-mortar establishment. Self-service retailers typically don’t know diddly squat about personal selling to shoppers, and Amazon is far advanced in this area. Actual SELLING is the heart of Amazon’s business, while order taking and physical delivery is the heart of the off-line retailers business. The “salesman” is going to win, given time and deficiency in this department for the offline retailer. These comments simply lay the ground work for what I refer to as the Amazonification of retail. It’s seriously doubtful that mercantilist retailers will… Read more »
Anne Bieler
Guest
Anne Bieler
11 years 7 months ago

Amazon understands online retailing–which has to be the foundation for making money in this business. There are huge challenges in sourcing fresh products, understanding what quality level is “right” for the online shopper, local infrastructure for timely delivery and more–but likely Amazon will build a model that can work for their target shoppers. The industry is watching!

Gene Detroyer
Guest
11 years 7 months ago

I am a huge proponent of Grocery Delivery Service. One of the keys to success is that the mindset of the retailer has to move away from the store. The success of Grocery Delivery is the ability of the retailer to move the product from the depot to the customer.

Amazon has everything in place to make this successful, other than their ability to move the product from their depots to their customers. This problem isn’t solved by UPS, FedEx or USPS. The type of trucking and manpower that is needed to go local is not part of their business structure.

However, Amazon has always seemed to know what they were doing. They would have great advantage over other grocery retailers on the customer interface side of the business. What they need is an efficient back end. It would not surprise me if Amazon were to establish relationships with small wholesalers who handle the depot-to-customer part of the sale.

Craig Sundstrom
Guest
11 years 7 months ago

Doug Herrington, vice president of consumables for Amazon, told Bloomberg, “We have a lot of confidence in the long-term economics… online grocery shopping is going to be really compelling.”

Sorry Doug, I just can’t agree with you; it’s nothing (personal) against Amazon–they’ve certainly succeeded at what they set out to do (even if no one’s quite sure it’s profitable for them)–but I just can’t see the online grocery business ever amounting to much more than a niche category…bigger, perhaps, than “mail order shoe shining,” but smaller than convenience stores by some distance.

Rick Boretsky
Guest
Rick Boretsky
11 years 7 months ago

I think online grocery shopping has great potential, but I am not sure how Amazon will execute on this. I agree with others that it takes great service, care, and efficient process to make it a money-making operation. I think that is best suited to local grocers that can provide that level of service in densely populated areas. Tesco has been wildly successful with its online shopping division in the UK and I recently interviewed and wrote about Toronto grocer Longo’s, who has also been very successful with their growing online business. It can even work with meat and vegetables, if the grocer truly cares and shops as if they are picking the produce for themselves.

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