Amazon plans major move into grocery business

http://preview.reuters.com/2013/6/4/amazon-plans-major-move-into-grocery-business-1

by barredo • 13 years ago

51 61 13 years ago

preview.reuters.com

Does anybody know if Amazon partners with large grocery chains? Seems to me that if Amazon.com was the last mile delivery/fulfillment service for already existing brick-and-mortar grocery chains, then they wouldn't be competing and maybe the grocery chains might actually go for it?

Maybe there is a first mover advantage for a chain who partners with Amazon. They could piggyback the service on top of the grocery chain's existing infrastructure and exploit Amazon's infrastructure and scale at the same time.

Maybe that way, the physical grocery stores could still keep their doors open, lower prices, perhaps be reduced in size and become more of a local warehouse.

natrius• 13 years ago

Sounds a lot like the Borders strategy. It worked well for Amazon. For Borders? Not so much.

sixdimensional2• 13 years ago

Good point. It seems like a non-starter all the way around because I'm sure grocery stores have thought about running this operation themselves.

References regarding the Borders comment:

- http://money.cnn.com/2001/04/11/companies/amazon/

- http://www.bloomberg.com/news/2011-07-19/borders-champagne-t...

- Google Trends showing Border's demise? http://www.google.com/trends/explore?q=borders%2C+amazon.com...

It's still amazing that one can't go online to order groceries and have them delivered from a local grocery store, especially on a recurring basis. It would be a nice amenity.

Does it really boil down to grocery store + eCommerce = politically/financially/practically hard problem? Seems like there must be some solution that would work.

MartinCron4• 13 years ago

In Seattle, they have been partnering with small specialty retail shops, bakeries and restaurants.

Some examples: Pike Place Fish co, Top Pot Doughnuts, Trophy Cupcakes, Macrina Bakery, Beecher's cheese.

Now I'm all hungry. Thanks.

codegeek• 13 years ago

Yes dear amazon. Being your Prime member, please let me order grocies online through you and hav them shipped especially for recurring items like Milk, Eggs etc.

pkfrank• 13 years ago

Given the success of FreshDirect, I really like Amazon's chances at nailing this vertical. After all, they are experts in shipping logistics, managing distributor-relationships, and handling payments/customer service.

I trust them to seek out high-quality partners and suppliers, deliver with reliability at low-cost, and make the entire thing as seamless as possible.

Will be interesting to see how transparent (or not) they are about their suppliers as it relates to GMO's, etc.

This will be a great tie-in and supplement to their "subscribe and save" (usually) non-perishable line of products.

minouye3• 13 years ago

Has anyone from the Seattle area used this service regularly? I'd imagine after 5 years it's become pretty polished. That seems like an eternity to improve their business model and get the economics right.

finnh• 13 years ago

It is FANTASTIC.

I get about 75% of my groceries through it, and have been for the entire time it's been available.

Their default produce & meat isn't quite as good as a WholeFoods or my favorite local store (Madison Market aka Central Co-Op), but AmazonFresh has recently started sourcing certain items from local specialty vendors - think Pike Place Market fish guys, that sort of thing. Those items are great, and it's wonderful to have them delivered.

Over the years they've tweaked a few things: changed the minimum delivery size, added a "tip" for the driver (which I think is wrong - they should be paying these guys a good wage .. but that's not Amazon's style, I guess).

They've also iterated the website multiple times from an initialy somewhat poor UX into the current one, which is pretty good.

EDIT: oh, and being able to add groceries to your order until roughly midnight, and still getting them on your doorstep by 6am the next day ... magic.

They also deliver certain Amazon items (they call this "Amazon.com NOW"), so I've ordered things like digital cameras and had them arrive within hours. AWESOME.

minouye3• 13 years ago

Delivering non-grocery items seems huge--apparently the end game of the delivery service could be a lot bigger than just groceries. Also the early morning delivery window sounds great. I used to get CSA delivery early in the morning and it was extremely convenient, but they just didn't have the selection I wanted.

MartinCron4• 13 years ago

My experience mirrors yours. One thing that I would add is that their mobile apps are also pretty good. I actually keep a 1st gen iPad velcro-attached to my fridge that I use pretty much exclusively for adding things to my Amazon Fresh cart, so when I realize I'm running low on a staple, I just pop it in and then it shows up my next order.

netghost• 13 years ago

One of the hidden perks is that you can also get same day shipping on non some grocery items like batteries and such, they're just dropped off by the Amazon Fresh truck.

As for produce, I'd rather just go to one of Seattle's many neighborhood farmers' markets whenever possible ;)

minouye3• 13 years ago

This sounds great--I've used Google Shopping Express and it's definitely convenient. If Amazon can offer something similar that would be fantastic.

programminggeek• 13 years ago

Amazon could be very successful if they setup "grocery warehouses" in local areas and just delivered groceries to people. It's not a wildly different model than the current grocery store, just with less need for prime real estate and you'd be paying delivery people instead of checkout people.

It can be done and it can be done profitably, it's going to be more about finding people who don't want to spend their time going to the grocery store.

jlarocco• 13 years ago

I'd pay maybe $50 a month for a service like this if it offered same or next day shipping between 7:00 and 10:00 at night, had an equal or better selection than the grocery stores by my house, and the quality of produce was good.

If they could integrate with some popular recipe sites to add little "Buy this on ..." buttons to each item in the ingredients list it'd be even better.

protonfish2• 13 years ago

I worked for an online grocery app and most customers were elderly, handicapped, had 8 kids or were small institutions (like group homes) - people with a lot of time at home, but difficulty getting out. From what I saw, online shopping will probably never expand beyond these types of customers for several reasons.

Grocery shopping in a browser UI can be a decent experience but will probably never be as clear and convenient as seeing the actual item, especially for non-prepackaged (meat, fish, produce, floral, etc.)

Convenience - online shopping requires planning ahead and being home in a time window to receive delivery. For the homebound it is no issue, but for most working people it's easier to just stop by the store on the way home.

nabnob• 13 years ago

I disagree completely. I live in Seattle and work roughly 50 hour or more weeks, and I enjoy spending my free time with friends or working on projects.

I already leave my apartment for work at around 8:30 am and, after stopping at the gym on my way home, I'm usually home around 8 pm.

If I make a grocery store trip, this adds probably 45 minutes to an hour, meaning I get home at 9 pm, which sucks.

I've started getting produce through a local CSA-type delivery service, and it's so convenient and easy. I think Amazon Fresh will work well for people who are busy and have the disposable income to spend an little bit more on delivery.

uncr3ative• 13 years ago

also, people without cars. I lived in seattle for 2 years without a car, and ordering online becomes much more worth it if there are heavy items or light but big items.

vtbose• 13 years ago

These (or even participating, regular grocery stores) could also have 'Amazon Lockers'...

kirinan• 13 years ago

As someone who lives in Seattle, let me tell you about the service (and Ill even compare it to safe ways delivery service!) You schedule a time, and pick out your groceries. You can attended or non-attended deliveries (Id advise attended), and you can basically order anything from the local area and its reasonably priced. You tip the delivery guy (usually like 5$), and they come to your house and deliver. The review of it is that the produce is hit or miss (most of the time a very big hit, and its usually very good), and most of the stuff is as advertised. The prices are very comparable to stores in the local area, and if you dont have to pay for the delivery fee, can even beat them. In comparison to Safeway's service, it blows it out of the water. My safeway experience has been plagued with bad produce, and out of stock items, with amazon this is never a problem. Most of the same, Amazon can deliver everything the next day, but sometimes it can take 2 days. Its VERY reliable in terms of times that are set (if I say I want between 7-8 in the morning, the dropoff guy is always here during that time.) Overall, I enjoy using it for getting fresh produce delivered to my apartment with little to no hassle. I also have an amazon credit card, and it gives me 3x points on my order (which is better rewards than most rewards card) so that is an added bonus. Im excited if the rest of the country can get the same thing. As someone who moved from Ohio, its a service that I never knew how badly I wanted till I used it.

samirahmed• 13 years ago

As a seattle resident who lived here a year ago and moved back again. I have a few things to add to this ...

1. Amazon Fresh prices one year ago were pretty high, they have driven costs down on everything except produce.

2. I live close to a City Target and have been avoiding Amazon Fresh because I thought the target was cheaper. Yesterday I took my $100 grocery bill and recreated it on Amazon Fresh, and excluding produce, it was $89.00. I was shocked to see the prices were cheaper for most things.

3. The delivery is free for $100 purchases, so you can't use it like regular amazon (or amazon prime).

4. The delivery times range from 5 am in the morning to late in the evening.

5. The packaging is often reuse able, plastic containers or clothe-bags and so you can leave outside and the delivery folks will pickup the old packaging, this is much more sustainable than regular amazon cardboard packaging.

6. Living in a city, it is easier and cheaper to buy in bulk of Amazon Fresh, because they prefer selling in larger quantities. Some items have 2 or 4 quantity minimums. If you don't have a car this is fantastic.

MartinCron4• 13 years ago

3. The delivery is free for $100 purchases,

Or, if you buy enough (not entirely sure what the threshold is) to get "Big radish" status, delivery is free for $50 purchases.

ISL• 13 years ago

Another Seattle user: When housebound with an injury, Amazon Fresh was great.

The UI wasn't as good as a supermarket shelf, and Amazon didn't always give unit prices ($/lb) in consistent units across the board. I don't think they let me sort cereal by unit cost either.

At budget pricing, it didn't seem to compete with Safeway. The minimum orders needed for free delivery also tended to price out a single grad student. Re-checking prices recently when ordering for two, it seemed like it was kind of a wash.

It's worth checking out. If it works for you, it can be great.

The real win for Amazon is the upsell. If you're ordering groceries, you can also order electronics with nigh instantaneous delivery for free. It's powerfully addictive (so powerful, in fact, that I noticed and quit).

ripter• 13 years ago

As a SF resident, replace the word Amazon with Walmart and that's exactly my experience.

I welcome Amazon groceries.

codex• 13 years ago

Amazon's grocery service is a lifesaver when you're too busy to shop. That said, it's not ready to supplant PCC or Whole Foods for the high end consumer: the organic selections suck, and what they do have is frequently out of stock. Some items can't be delivered in the morning, only the afternoon. Solve those problems, and add a service to create grocery lists from recipies, and you have a winner.

atacrawl• 13 years ago

I don't get why Amazon would want to do this -- it's always been my impression that grocery stores' margins are razor-thin. Am I wrong about this?

kennymeyers• 13 years ago

Amazon's margins are also thin. They generate a lot of their revenue by volume.

jonknee• 13 years ago

Amazon loves razor thin margins.

It's also a good way to start cutting out their biggest expense--shipping. If Amazon is already going to be in your neighborhood every day dropping off food, I don't see why they can't also drop off other Amazon products.

vijayr• 13 years ago

I wouldn't be surprised if in a few years from now, Amazon starts directly competing with FedEx (not just delivering the products they themselves sell). If there is one company that thrives on volume and razor thin margins, it is Amazon.

Just look at the range of markets they are entering - it is scary. cloud storage, selling almost every physical product we can imagine, online video, tablets (and phones soon) ...

potatolicious2• 13 years ago

This has positive synergies with Amazon's long-term plans: near-instant availability.

One of Amazon's largest costs right now is shipping, and their volume is approaching the scale where running their own last-mile transportation, in some cities, starts to make a lot of sense.

These are also, coincidentally, the cities that are dense enough to support a delivery grocery business.

So basically:

- Freedom from the tyranny of UPS, FedEx, and shitty last-mile delivery companies like OnTrac.

- Lower cost and higher efficiency of a shipping infrastructure that is tailor-made for their product variety and delivery timing.

- A convenient way to build said infrastructure in a way that does not involve Amazon going all-in with their core business, and instead allows them to slowly attach the main Amazon.com experience as the delivery infrastructure grows.

- Domination of yet another vertical.

I'm excited. I used Amazon Fresh in Seattle when I lived there, and nowadays in NYC even the vaunted FreshDirect simply does not compare. New Yorkers think they've seen the end-all-be-all of grocery deliveries, but they ain't seen squat yet.

sfall2• 13 years ago

think of the over head that gets shifted or cut.

Instead of stocking the shelves and maintaining them now you place a pallet in the pick line and have an order picked once. Warehouse space is typically cheaper. A warehouse doesn't need to be built out to look nice, just fictional.

Your advertising, shifts and is honed so less is hopefully spent. You also get to tap amazon's logistic and ordering knowledge so less waste and spoilage.

Your order pickers can grab all the items before they go. Hell they could build in specials for when a supply has been sitting but still good.

You don't have to have people rounding up carts, watching automated checkouts, etc.

The margins aren't as great as other goods but if you cut the costs and match local prices you can still make more. I also would guess that as time goes on their could be a grocery prime account where you get a once weekly delivery

stephengillie• 13 years ago

Grocery margins are razor-thin for 2 reasons:

1. Most of the money in grocery is in perishable foods. There's also a huge amount of shrink from product spoiling or being damaged -- A truck driver having a bad night can easily lose 2-3 pallets (288 gallons each) of milk. If the cooler or freezer is full, pallets of product sometimes get left in the backroom aisle.

2. Unions forcing exceptional medical plans. When I worked for Safeway, and was part of UFCW Local 367, I had the best medical care I've ever had -- PPC network with low copays and it included ~$600 of dental and glasses lenses/frames every year/two. And we had no deductible as long as we worked more than 20 hours per week.

Amazon won't have any stores, so they'll be avoiding both of these costs.

xaritas• 13 years ago

My take, from being a cube dweller at Amazon, circa 2003: Jeff Bezos' mantra (well, one of them): 90% of all commerce is local. I remember we even had a somewhat whimsical project to scan all local restaurant delivery menus... not that it panned out, but local is an intense area of interest.

Another mantra: platforms win (unstated: in the long run).

My synthesis: The purpose is to become the platform for all commerce, not to sell groceries. I wouldn't be surprised if Mr. Bezos' long term goal is something breathtakingly audacious like "directly facilitate 1% of all global commerce by 2073."

BasilAwad• 13 years ago

inventory turnover also has to be taken into account

ippisl3• 13 years ago

Amazon bought kiva robotics last year. That's a company that builds robots for e-commerce warehouses. They increase worker productivity by 4x, reduce error to zero and decrease space needed.

Using such robots for groceries might increase amazon's margins in retail to a reasonable level(for amazon), and will definetly be a competitive advantage over others.

teej• 13 years ago

As an SF resident and hyper-avid grocery delivery user, I welcome our new, Amazonian overlords.

I tend to get 1-3 deliveries from Amazon a week, so tacking on groceries to that list would not be a major problem. There's still a question of how you handle perishables like milk though. Plus, I've found that most delivery services tend to be incredibly variable in their produce quality.

For those curious about the startups in this area, I did a bit of a writeup where I raced three services head-to-head against each other. http://teejm.com/the-great-grocery-game

hkmurakami2• 13 years ago

regarding perishables, Japan has companies that do "cool delivery" where the tricks are refrigerated, so maybe that will catch on here as well.

potatolicious2• 13 years ago

Amazon handles perishables by having refrigerated trucks, and putting your groceries in insulated plastic containers that also have cold packs, as needed.

It all works pretty well as long as you don't get too crazy about how long you leave the groceries outside.

grinich• 13 years ago

I wonder how much Amazon (and similar) will effect urban planning in the future. Delivery lets them undercut existing sotres that pay exorbitant rent for storefronts in urban areas. They did this with bookstores, then the general store, and now it seems grocery stores.

Think about what remaining businesses are based on locality, but whose margins are eaten by the rent. Car dealerships. Malls (for clothes). Furniture. The uncracked problem with these is you can't easily try/fit the item before buying.

If Amazon can somehow solve that...

bostonpete3• 13 years ago

I'm pretty sure most new car dealerships are guaranteed, by contract, to have a regional monopoly for their makes. That would be a huge barrier to anything resembling an Amazon for cars.

DanBC2• 13 years ago

How is that legal? How doesn't that fail against competition laws?

ippisl3• 13 years ago

Online fashion retail has 10-20% market share today, and is growing. There are plenty of start-ups working on virtual methods of fitting clothes. That , with generous return policies, good brands , and cheaper prices because of online savings holds a lot of potential, not to speak of interesting online experiences.

There are some companies that do online furniture. First they use the price advantage ,and stuff like group buying. They also try showroom models like: showing a few couches in some coffee store, or showing miniature models of furniture , to save space. I bet there is also some work on 3D and virtual reality that we might see when the occulus rift becomes popular.

If think amazon's strategy is to let other companies solve problem and the rapidly copy them/buy them and use their resources to scale the business. They just recently started doing so in fashion.

Turing_Machine• 13 years ago

Amazon already sells a hell of a lot of clothing. I buy more stuff from them than anywhere else, actually.

I've even bought a couple of suits from them, and they were fine. It's not a problem as long as you measure carefully and plan on getting some alterations/hemming done locally (as you would with any off-the-rack suit).

Hey, that might be an idea. Amazon sends around someone to measure you, then you get a bespoke, tailor-made suit delivered in a week or so. Take that, Savile Row. :-)

Furniture could be handled with a good VR system -- something that lets you take a few dozen pictures of your living room from different angles, synthesizes a 3D model, and then lets you put a virtual piece of furniture in there.

zwieback• 13 years ago

Question for those of you who have used this service: how often do you get fresh fruit or vegetables that don't meet your expectations?

When I go grocery shopping I agonize over every single item and when something doesn't look fresh I change my dinner plans. I'm not sure I'd be comfortable buying perishable stuff online although I'd love it for dry goods and cans.

hkmurakami2• 13 years ago

I'm in the same boat as you, but I think another relevant question is what fraction on people actually agonize over such things like us? what fraction doesn't care?

then in addition, we'd have to consider whether having items chosen for you as opposed to chosen by you would engender more negative reactions buy the user (which I imagine ius the case since there's no more incentive to protect yourself vs purchase regret)

MartinCron4• 13 years ago

They expose a "produce rating" from below average to average to good to great to FANTASTIC!

You can even sort by produce rating to see the FANTASTIC! things first.

I've found that their descriptions always met my expectations.

kakoni• 13 years ago

Dear Amazon, could you expand this to Finland?

jonasvp• 13 years ago

I hope Amazon is using this to take over last-mile delivery. That would be an amazing opportunity to roll out something like http://www.cargocap.com/ - though probably not in a typical US suburb.

In a somewhat denser city, doing last-mile delivery by something other than a people-killing, air- and noise-polluting truck just makes a whole lot of sense. I know it's far off but there are few companies other than Amazon that I would trust to pull it off.

TillE• 13 years ago

Grocery delivery is the kind of thing that only makes sense in the suburbs (for able-bodied people, anyway). I live in Berlin right across from a grocery store, around the corner from another one, and a five minute walk from 3-4 more.

That's a little more than usual, but really any well-planned moderately dense city should have most of your immediate shopping needs within a short walk. This is a service for suburban areas where you'd otherwise have to drive.

It would be nice to see them use electric vehicles, though.

ippisl3• 13 years ago

But small urban retailers have some disadvantages: Higher prices, small selection and lousy experience.

E-commerce might improve the total value.

timthorn• 13 years ago

Ocado, Tesco and others seem to do a reasonable line in home delivery in London - no matter how close the shop, if you're doing a week's worth of grocery at once home delivery helps.

munificent• 13 years ago

Just wait until this gets coupled with self-driving trucks.

Amazon plans major move into grocery business

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