Financial Times: Amazon Ready to Deliver Groceries Nationwide

Discussion
Jan 25, 2011
George Anderson

When you read the description of the AmazonTote grocery
service, it’s hard not to wonder, what’s the catch?

"AmazonTote is a free weekly delivery service from Amazon.com. There
are no subscriptions, minimum delivery sizes, or fees. Items delivered using
AmazonTote will be brought to your doorstep in a reusable tote bag, free of
charge."

According to the Financial Times, Amazon is planning to
expand the Tote service "company wide" from its Seattle home market.
While an exact date was not given, an announcement on the site that was later
taken down said it would be "expanding soon." Amazon began testing
AmazonTote last summer with the same trucks it uses with its pilot AmazonFresh
program.

"Because of the frequency of grocery purchases … you have an opportunity
to be in front of the customer at least once a week," Rich Tarrant, CEO
of MyWebGrocer, told the Financial Times. "By tying in that frequency
with the ability to get everything else you want, you literally have created
the virtual Walmart."

Fiona Dias, executive vice president for GSI Commerce,
told The Wall Street
Journal
, that regularly weekly deliveries could potentially lead Amazon
customers to add other non-grocery items to their basket, as well.

"What they want to have is a truck come to your house once a week to deliver
whatever you want in it," Ms. Dias told the Journal. "You
never have to leave your house to shop again."

Discussion Questions: What is your reaction to Amazon expanding the Tote service “company wide?” What do you see as the opportunities and hurdles before Amazon if it is going to deliver groceries beyond the Seattle test?

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19 Comments on "Financial Times: Amazon Ready to Deliver Groceries Nationwide"


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Ron Margulis
Guest
10 years 3 months ago

Let me reuse the milkman analogy to review the potential home delivery. Many of us born in the ’60s or before remember getting milk delivered to our homes once or twice a week. Even my family, owners of a small group of supermarkets, used this service. Gradually, however, shoppers began buying their milk and other dairy products from supermarkets and convenience stores and the milkman was delivering to fewer and fewer homes. At some point, perhaps when only 40 percent of a neighborhood was buying from the milkman, it was no longer economically feasible for the dairy to continue the service.

Now think of this analogy in reverse. As more and more people in neighborhoods start routinely buying from a single home delivery services, the economics of the model start to become feasible. This is especially true in urban and suburban areas.

All of this is a long way to suggest that the Tote service may now be more than just a solution looking for a problem, particularly if gas prices shoot up.

Paula Rosenblum
Guest
10 years 3 months ago

I suppose one should never count Amazon out in any race…the company has managed to hook this shopper on the crack called “Amazon Prime.” But still….

I don’t doubt people will take advantage of the service. I DO doubt that Amazon will be able to make money on it and/or meet customer delivery window expectations.

Home delivery is a dicey thing in places like New York and other major older cities. I remember this from the furniture business. You never know when you’re going to encounter a 3rd floor walk-up, a broken elevator and any number of things to just slow you down.

I hope it works. But I have my doubts.

Steve Montgomery
Guest
10 years 3 months ago

One thing I didn’t see was any mention of the cost of the product itself. Assuming it is reasonable, I fail to see how this is economically viable. While the marginal cost of adding a grocery product to a delivery that is already being made may be small, the cost to deliver a single grocery item someone may have ordered (without the higher margin GM item) has to be disproportionally large to the value of item. True, most orders will likely be more than a single item but grocery margins being what they are with the cost of labor and transportation, I don’t see how it will work.

Bill Emerson
Guest
Bill Emerson
10 years 3 months ago

I think Ms. Dias reveals the whole strategy with “what they want is to have a truck come to your house once a week.” This is, in my opinion, about mind share. Amazon wants to be the top of mind consideration for everything the customer wants. The specific profitability of grocery delivery is most likely secondary to that. Remember how many years Amazon went selling books before they made a profit?

Janet Dorenkott
Guest
Janet Dorenkott
10 years 3 months ago

I think Amazon has the right timing for introducing this to the market. I’m not sure it will take off right away but with baby boomers starting to retire, there will be more and more opportunity for home delivery; especially as retirees become more and more comfortable with the internet. My 77 year old mother in law is getting better at navigating online and as she gets older, her arthritis is getting worse. Add to that a few inches of snow and she would be thrilled if someone delivered groceries to her door.

I am curious to know if companies like Schwann’s or Omaha Steaks is expanding their at home delivery, offerings. They are already in this market. It seems like they might be better positioned if they advertised more and expended their offerings.

Max Goldberg
Guest
10 years 3 months ago

The success of delivered groceries has always depended on cost and quality. If Amazon can deliver quality produce and meats at competitive prices, without delivery fees, they might be able to succeed where so many other online grocers have failed. When combined with the ability to deliver other, non-grocery products at the same time, and Amazon could emerge as a definitive competitor to Walmart. I hope it works.

Gene Hoffman
Guest
Gene Hoffman
10 years 3 months ago

A food tote from a place remote
Causes Amazon folks to gloat
But their prices must be nice
With no quality sacrifice
For most Boomers to use it twice.

Still —

There are those who want no hustle
Of spending time in store bustle
They will trade their bucks for saved time
And live on a more expensive dime
So – maybe Amazon will reach its prime.

Anne Bieler
Guest
Anne Bieler
10 years 3 months ago

Some home delivery grocery services work–they understand customer need, selection, the delivery environment, and the need for quality and reliable service. Amazon has built their remarkable business by understanding shopper needs–and great, personalized customer service. They build best practice into how they run their business–and likely know a lot about the critical elements that will make it work–consumer facing, consistent quality and excellent service.

Bernice Hurst
Guest
10 years 3 months ago

Apart from the concept itself, I’m struggling with the language here. What on earth does “company-wide” mean? Anything the company (Amazon) sells? If so, why is the discussion primarily about groceries?

If it does mean anything and everything the company sells, then the concept is a good one but, like others, the practicalities and costs defeat me. It seems to imply single items delivered free of charge in the tote bag each week which just does not make any potentially-profitable sense (cents) to me.

Daryle Hier
Guest
Daryle Hier
10 years 3 months ago

I too would like to see this work … but we’ve been down this road and there’s nothing in our economics that tells us this is the right timing. Gas prices are rising and that alone could make this an uphill battle.

Sooner or later, I do believe the grocery delivery business will work. If they marketed it where convenience and speed were the advantage and actually performed, well then it might be possible.

I remember many instances a dozen years or so ago how Webvan looked like they might make it, and how customers were starting to get used to using it more and more–then they closed shop. Amazon has proved many of us wrong, time after time, so maybe they could be at it again. I have questions.

James Tenser
Guest
10 years 3 months ago
More than ten years ago I floated the proposition that online grocery delivery services could serve as an alternative delivery vector for non-perishable items purchased online, like Amazon.com books. My reasoning was that if a service like Webvan or Streamline was already delivering to a neighborhood 2-3 times per week, the ride-along packages would add marginal profit to the trips at a lower net delivered cost. It would at first appear from this latest announcement that I had the idea inside-out. Here is Amazon.com bringing all sorts of non-perishable items in the same delivery as my grocery order. Great for heavy items like cases of soft drinks, or consumables like diapers. On closer look, however, I see reasons for skepticism. The main one is that the Amazon Tote service does not offer perishable foods. If a delivery service can’t bring me my milk, meat and fresh produce, then it really doesn’t save me trips to the physical store. Security of unattended deliveries is a secondary concern. Any large-scale innovation by Amazon.com bears watching, and this… Read more »
Gene Detroyer
Guest
10 years 3 months ago
My reaction to Amazon and expanding home delivery of groceries? Why not? Home delivery of groceries will be the preferred alternative in the next 20 years or less. And, if anyone can figure out how to do it, Amazon can. Fresh Direct just started a 3-month trial of drop delivery charges and minimum order size. The result in this household was that rather than ordering once every 2 weeks, we now order twice a week. The result for the local D’Agostino’s is that we don’t go there for fill-ins. How can Fresh Direct do this? I asked our doorman to check and see how many times a day Fresh Direct makes a delivery to the building. In checking the book, the number of deliveries averaged between 3 and 4 daily and more on weekends. Fresh Direct is coming here regularly. Therefore, the cost of delivering an additional order of 2 half gallons of milk, a dozen eggs and a box of cereal is negligible and the revenue is all incremental. That is how it works… Read more »
Herb Sorensen
Guest
10 years 3 months ago

The game is afoot, and the rules elude the bricks and mortar world. The Amazon rules are based on SELLING things to customers and taking the products all the way to their homes. The bricks and mortar crowd has the albatross of trillions of dollars of inefficient real estate deployed on the plan that shoppers will come in and sell themselves. The bricks and mortar world makes their money by charging suppliers for putting products in their real estate. Amazon makes their money by selling to customers. The ground is moving beneath our feet!

Craig Sundstrom
Guest
10 years 3 months ago

I have to join the naysayers here: I just don’t see grocery delivery becoming a big market for Amazon (no pun intended). There are superficially attractive factors (an aging, presumably less-mobile population; feel-gooders who want to drive less, etc.) but free once-a-week doesn’t seem like much of a model, and daily or on-demand seems too costly. To further examine Ron’s reverse analogy: it only works if more and more use it … a (very) big “if.”

Gary Chatman
Guest
10 years 3 months ago

Walmart, Lowe’s, Home Depot and lots of others are the engines behind this re-introduction of “Last Mile” service companies. All of these stores are offering online ordering in the morning with pickup ready in the afternoon, so why go to the store?

Grocery deliveries are the most familiar but with online sales growing at the rate they are, why not take advantage of the added convenience and instant gratification? Local/small merchants can introduce a new service to customers and may help keep the playing field somewhat level; your competitor delivers and you do not.

The ability to shop locally,check availability and and even try on brands at some retailers have put quick home delivery on consumers’ minds.

This is going to be interesting.

Ed Rosenbaum
Guest
10 years 3 months ago

I am wondering why I, as a positive and forward thinker, am having a problem with this. I can’t see it as a long-term viable program. I see trucks at our local grocery store that don’t look like they have moved very often. I wonder why someone who is not house bound would want this? People like to touch and see what they are getting from the grocer. Especially in the produce section.

I understand the price of gas is rising. I do not see that as a deterrent from going to the grocery store. I mentioned it to my wife. She looked at me like I was crazy. Sorry, but I am not ready to sign up for this yet.

Ed Dennis
Guest
Ed Dennis
10 years 3 months ago

Note the number of negative comments by the consultants in this group. Well, Bezos has beat the odds on just about everything he has tried so far. Got caught on wine, but that was a legal problem, not a logistics issue. Bezos has proven to me that he is willing to work for a living and can solve problems for himself. This makes him an extremely dangerous competitor, especially in a marketplace where competition is weak. I look for Amazon to find solutions and if you are smart, don’t bet against them.

Tim Henderson
Guest
Tim Henderson
10 years 3 months ago

In its current form, Amazon Tote is a great service. But it’s pretty ambitious to go from 20 ZIP codes to nationwide service. Obviously not all areas (especially remote areas) will be serviced, and I have lingering questions about whether Amazon can absorb the costs. More details are forthcoming, and I’m guessing some tweaks.

Kai Clarke
Guest
10 years 3 months ago

This is a model that is just not ready for prime time. Part of grocery shopping is the experience. This includes special purchases, impulse buying and even the touch, smell and feel of the grocery store. This cannot be duplicated in the online environment, and with issues like keeping so many frozen items frozen, as well as cold things cold, we have an entirely different set of issues than what we had in the 1960s.

This is not just about delivery, but also customer satisfaction, being able to offer all of the items a consumer wants (or doesn’t want) regardless of the total ticket. Can this model survive in a $5 or $10 existence? What happens when we start adding the fresh meats, fresh vegetables and fresh fruit factors into the ring? These are very delicate items that need to be “fresh enough” for every consumer.

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