6/20/2013 5:15 PM ET|
Is Amazon.com the next Safeway?
The online retailer is expanding its grocery operations to California after years of testing in Seattle. Are traditional supermarkets destined to go the way of Amazon victims like Borders?
Without a lot of fanfare, Amazon.com (AMZN) has begun to nudge its AmazonFresh grocery business beyond Seattle.
It began offering groceries in the Los Angeles area earlier this month, and the word is that the San Francisco Bay Area is next. If the results are decent -- and only Amazon knows what will be considered "decent" -- the idea is to expand to perhaps as many as 20 major markets in 2014.
The move has, predictably, generated predictions that Amazon will take over the nation's grocery business, destroying Safeway (SWY), Kroger (KR) and others in the process. OK, that's a bit apocalyptic, but Amazon has clobbered most of its bricks-and-mortar competitors. Just ask Barnes & Noble (BKS) or the late Borders. (Or take a look at "Amazon's next 10 victims.")
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If Amazon is really serious about online groceries, the other players in the home delivery field should get worried fast. And maybe even Costco Wholesale (COST) or Whole Foods Market (WFM). They may not deliver, but they compete for many of the same customers that Amazon.com appeals to: affluent, busy people who pay attention to price and quality.
And eventually, those established supermarkets -- and their shareholders -- should get ready for a battle. Here's why.
The retail giant never sleeps
Amazon is the world's largest online merchant and one of the most powerful brands in the world. It has heft -- total revenue may hit $80 billion in 2013 -- and experience in same-day delivery. That experience is in groceries on a small scale, but with other products on a huge scale.
It's been toying with AmazonFresh for six years. At the same time, the company has been building a network of huge order-fulfillment centers all over the country. It already offers same-day delivery of groceries through its Local Express Delivery in 10 markets, including Baltimore, Chicago and Las Vegas.
Most of all, says analyst Brian Sozzi, chief executive of Belus Capital Advisors, Amazon.com has patience. If it takes 10 years to build up a business, so be it.
The Los Angeles grocery business requires a couple of things from customers:
- You have to live in the targeted ZIP codes, presumably ones with big populations and, probably, high incomes.
- You have to pay a $299-a-year membership fee to Amazon Prime. That is the company service that offers free two-day shipping on all eligible purchases and discounted rates for one-day shipping.
Amazon then offers you a full range of groceries, from radishes and lamb chops to laundry detergent. If you put your order in by 10 p.m., you get your groceries the next morning. Orders that come in by 10 a.m. are delivered the same day. If that doesn't work for you, you may be able to pick up your goods at a locker located in another retail store, such as a Staples.
Are groceries going online?
Online grocery shopping is not a new idea. Peapod, owned by Royal Ahold, the big Dutch retailer, operates in 20 markets in 13 states already. There a number of smaller players such as Relay Foods, which serves customers in Baltimore, Washington and Virginia, and GopherGrocery, which proudly offers itself to customers in 113 Minnesota ZIP codes.
Wal-Mart Stores (WMT) has been testing "Wal-Mart to Go" in the San Jose, Calif., area since 2011. But the retail giant has been skeptical that online grocery delivery is viable, at least in the United States. Wal-Mart's Asda supermarket chain in the United Kingdom, however, is Britain's second-largest grocery-delivery business.
EBay (EBAY) and Google (GOOG) are looking at the business as well. EBay is looking at partnering with existing groceries, something Peapod does already with Royal Ahold-owned Stop & Shop and Giant chains.
Wal-Mart's concerns are everybody's concerns: You need population density, which is why Amazon is targeting LA. And you need demand: customers willing to pay the delivery charges or willing to place big orders. Most companies charge $5 for deliveries up to $100 and free delivery for orders over $100. The typical U.S. family spends $125 or so a week on groceries.
In Seattle, if testimonials from Amazon customers on Yelp are an indication, these conditions translate into customers from affluent neighborhoods, where both spouses work or have so many activities that a trip to the supermarket is a burden. Amazon hasn't said how many customers it has in the Seattle area, but there are guesses of around 10,000.
Amazon.com held back on home delivery of groceries for many years in part because of the uncertainty of sales-tax liability. But now that Amazon is collecting sales taxes in nine states, including California, the uncertainty is no longer an issue.
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What would make my very, very happy is if Amazon was SHUT DOWN TOTALLY. The government should get rid of this cancer before it destroys communities, puts everyone out of work and creates a world where everyone is stuck in their houses with nowhere to go (and nowhere to work, either).
This Amazon has already closed countless beautiful bookstores, such as Borders, and their associated snack businesses. They've done enough damage and put enough people out of work. Get rid of them, somehow. Stop doing business with them, demand that laws are enactive to close it before it destroys everything. You can't live without a community and a community needs diverse and independent stores to get out in your car and go to, which allows the malls and restaurants and car services and gas stations and so forth to function and pay their workers.
We can't let that bald genius and those like him ruin everything and lay back and let him take away all life from our communities and cites. People have to get out an associate, not stay in their houses like cattle waiting (hopefully) for even their food to arrive while hiding behind a laptop. It's unhealthy and dangerous in my opinion.
Groceries from a company like Amazon I don't think so.
This is a company a year and a half ago was selling a book on "How to molest kids" till we had a world wide call to Boycott all their sales. Took us 24 hours but Amazon did pull that one book from the money making on-line order store.
If you think I'm lying, well Amazona could sue me if I was, but trust me you won't see any of Amazons lawyers close to my house cause they don't want to rehash the truth.
Amazon still sells books and video's that deal with child nudity, sorry guys couldn't get those taken down as they meet the 1st Amendments Rights to free Speech. :>(
BRING IT ON! I don't have great choices in my small town. Kroger is too expensive; Wal-Mart's stock just stays around too long. The apples look like prunes :'(
I'm a loyal Amazon shopper for many items and they have exceptional customer service (it's all self-service, but that's okay). And Yes! I think they will have great success in the grocery department. THANKS AMAZON!!
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