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 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.
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.
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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..
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.
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.
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.
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!
Costco too !
Somewhere I see a delusional female in a straight jacket in her padded cell, squirming.
Ohh VL where arth thou ?
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.
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Consumers are very status conscious in Asia, Africa and other emerging-market areas. This is especially true in China.
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