Amazon's latest venture: Pantry

The giant online retailer is reportedly set to take on Costco and Sam's Club with a foray into package goods.

By TheStreet.com Staff Dec 13, 2013 11:04AM

An Amazon Fresh grocery delivery © Joe Nicholson/APBy Chris Ciaccia

 

Amazon (AMZN) isn't content announcing just a new drone delivery service, a new Kindle or whatever else CEO Jeff Bezos is thinking of next. It reportedly wants to take on Sam's Club and Costco (COST) next.

 

USA Today, citing three people familiar with the effort, reported Amazon is working on a new business known as Pantry that will allow it to further compete with brick-and-mortar retailers. Amazon's expansion into the consumer package goods business will challenge Wal-Mart (WMT) and Costco, as Bezos seeks to expand his ever-growing empire. The new business venture is reportedly set to launch in 2014.

 

Amazon couldn't be reached for comment.

 

It makes sense that Amazon is looking to compete with Sam's Club and Costco, given that it already has a membership structure, similar to both of those businesses. Amazon Prime, which allows users to get free, two-day shipping and countless movies and television shows, costs $79 a year. Amazon has never publicly said how many members are in Prime, but the company did say it "signed up millions of new Prime members" during its third quarter, in which it saw revenue rise 24% year over year to $17.09 billion.The Street on MSN Money

 

For the fourth quarter, the company is expecting revenue to be between $23.5 billion and $26.5 billion. Wall Street estimates call for Amazon to generate $25.9 billion in sales.

 

Costco recently reported first-quarter results that disappointed Wall Street, as net income rose 2.4% to 96 cents a share, generating $24.47 billion in quarterly revenue, below analysts' expectations of $25.35 billion. Comparable sales for its fiscal first quarter rose 3%.

 

By comparison, Sam's Club continues to be a standout performer for Wal-Mart. According to Wal-Mart's annual 2012 report, Sam's Club saw net sales increase 8.8% to $53.8 billion, while operating income grew 9% to $1.9 billion. "Members are shopping more frequently, shopping more categories and spending a greater share of their wallet with Sam's Club," the company said in the report.

 

A quick look on Amazon's Web site showed it is already starting to compete with Sam's Club and Costco for products found in these stores, such as cereal, boxed goods, and cleaning supplies. It offers a feature known as Subscribe & Save, which allows users to receive a discount for the product they're buying when they get regular deliveries of the item. Customers are entitled to an even bigger discount on their delivery if they subscribe to five or more items that arrive in the same month.

 

Pantry also expands on Amazon Fresh, Amazon's grocery delivery business, as it looks to take on supermarkets. Amazon already has programs up and running in Seattle and Los Angeles, and recently announced its expansion into the San Francisco market. Amazon Fresh, which will be available in select zip codes of San Francisco, costs $299 a year, and allows customers to sign up for same or next-day delivery for vegetables and fresh foods.

 

While Amazon is always looking to expand its reach into other industries, it still has much to do to win over investors and the marketplace, particularly with this new venture.

 

"I think it's a lot of hype," said Brian Sozzi, chief equity analyst at Belus Capital Advisors and a Real Money columnist. "Costco and Sam customers are buying large boxed items. They're buying supersized mustard. At long as Amazon is not getting into bulk, it's not a threat to Costco and Sam's Club."

 

These types of consumers are valuable to Amazon, given that they traditionally spend more on the site, indicating the "stickiness" of the platform.

 

Amazon already has the infrastructure in place to take on the consumer packaged goods giants, with several of its massive, fulfillment centers already designated toward the Pantry initiative.

 

Shares of Amazon were higher in premarket trading on Friday, gaining 1% to $385.10.

 

More from TheStreet.com

53Comments
Dec 13, 2013 11:37AM
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I do not think I will be buying my fresh vegetables and fruit over the internet.  I want to check it to make sure it is actually fresh.   I do not need to pay 300 bucks per year for the pleasure of buying their products.  
Dec 13, 2013 12:10PM
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"Drone delivery" is a gigantic lawsuit waiting to happen. Amazon has blown it twice with us on deliveries resulting in a big hassle on returns.  Costco hasn't failed us so far.
Dec 13, 2013 1:36PM
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Selling groceries on the internet for delivery might be a workable idea if they were coming from your local supermarket.
Why not?  we get pizzas delivered.  Stores just need a fat website,  an automated stock picking and boxing operation,  and some delivery people.
And we don't need to pay a membership fee,  unless it definitely pays us back and then a lot more..

Dec 13, 2013 12:56PM
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Money is the factor in our home when making purchases that are non perishable. For groceries, we will stick to Costco and the supermarket. When it comes to hard and soft goods we shop the internet. We use Amazon, Costco, Price Grabber, JR Electronics, Wayfair, Overstock and many others. Most offer free shipping with a minimum purchase. The important factor is be a good shopper by comparing prices for your purchases.

Dec 13, 2013 12:07PM
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I like Amazon a lot but there are a lot of items I would not order without checking them out with the touch and feel before I buy...
Dec 13, 2013 11:34AM
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All you need to know is Amazon is up $157 per share over the last year!
Dec 13, 2013 11:57AM
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Subscribe and save....yeah right.  Anyone that believes that also believes that the best deals at your grocery store are found at the end caps on each aisle.

Dec 13, 2013 12:58PM
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sorry but when it comes to buying my food…   i an buy very little crap that comes out of a can or a box…   i will be buying it fresh…  where i can see it, touch it, smell it and thump it…    no buying food over the internet will never really catch on…   statistically most food is bought to consume within a day or two…   no one will want to wait for a delivery….
Dec 13, 2013 1:13PM
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One two three go the new marketing ploys for Amazon.  If you are able to constantly keep goosing share price by introducing new ploys why would you stop?  And to never show a profit while your share price continues up up and away.  I never trusted Bezos with that nervous giggle but looky he's worth like 30 billion.
Dec 13, 2013 3:44PM
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  Boy! What goes comes around. Some of the local community markets used to deliver when I was a kid using three wheel motor cycles with the big box on the back like meter readers used in the 50's. They delivered to the elderly and the home bound. It's was a good deal for them.
Dec 13, 2013 11:28AM
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Wall Street played this game of  "Panic The Fed is Going To Cutback The Incentives" about 2 months ago. I guess we have nothing else to spur the selling so we have to use this B/S to promote business. Are stockholders that "Deaf, Dumb and Blind" to Wall Street's antics????
Dec 13, 2013 1:51PM
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Ordering and delivering food online is probably good for disabled people and the elderly who aren't very mobile to go out and buy food for themselves.  I think it's also good for food banks like Meals on Wheels to order food in bulk without having to take an extra trip to go out.  Just order from your computer at the office and go about your business for the rest of the day until it arrives.

Dec 13, 2013 1:33PM
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No Website or Business can take over Costco for product, and Customer Service--the Best Invention ever--

We save thousands and thousands of dollars per year shopping there---

Need that Toilet Paper, their biggest seller!

Dec 13, 2013 5:04PM
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But I can't get those great free samples at Amazon!

Dec 13, 2013 11:24AM
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At some point, Amazon needs to stop with the new ventures and focus on making their existing ones profitable.  It's almost as if Bezos uses all these ventures and ideas as excuses for why his company isn't making any money.
Dec 13, 2013 1:26PM
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I don't buy much on the internet unless there is absolutely no other way to get something I need. Once I bought my kid a hoodie from an online store...they sent the wrong size twice...they also had to pay to get those wrong size items back...I don't see how they made any money on the deal.
I am like so many other people on here...why would I want to buy fruits or veggies online; we are low-carbers and don't eat packaged/canned foods. We also don't buy things at Sam's Club or WalMart EVER! We do go to Costco and will continue to do so.
Dec 13, 2013 7:55PM
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amazon is financial supporter of Obama as payback owner gets amazon stock inflated using people's money from bail out banks all colluded.so owner doesn't need to make profits he makes billions a year selling options and inflated stocks.its unlawful but is what u expect from a  lawless dictator.Amazon also has competitive privileges.,,it still not paying sales taxes in more than 50% of states.This is Obama's change to make rich democrats richer than god.
Dec 13, 2013 4:00PM
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Water....I think that is why Big Baskets on Bicycles came along...And wire Saddle bag type baskets on the back....Kids delivered that way, if it was more then a couple blocks..


I used mine for delivering newspapers....Especially the Big Sunday route, with out of town or out of State papers.

Dec 13, 2013 4:37PM
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My son lives several hours from the nearest big box store. He uses Amazon for all of his non-perishables. He places an order about once a week and with Prime, it arrives 2 days later. He's compared prices and added gas costs, and for him it is cheaper. 
Dec 16, 2013 3:50PM
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robots will be delivering bullets to those that don't agree soon. ding dong
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