Need groceries? Amazon's got 'em

The company resurrects dot-com flop Webvan. Will the home-delivery model work 10 years after the original company went bankrupt?

By InvestorPlace Jan 24, 2011 10:50AM

Image: Groceries (© Jeffrey Hamilton/Getty Images/Getty Images)By Jeff Reeves, editor of InvestorPlace.com


It's been a great few years for Amazon.com (AMZN), with an estimated 40% sales growth in 2010 and its stock up 250% in the past two years. The breakout success of its Kindle e-reader and continued strength in its online retail business have made Amazon one of the top stock picks on Wall Street.

 

Not content to rest on its laurels, Amazon is cooking up a sales strategy that will really turn some heads: a free weekly home-delivery service, bringing baby care products, groceries and cosmetics right to your doorstep.

 

Some observers say it's going to revolutionize Amazon's business model. Others see shades of a dot-com flop that bled cash until it went bankrupt. Here are the details so you can judge for yourself:

 

AMZN has been testing a delivery service, AmazonTote, in its hometown of Seattle since last summer. The program involves free home delivery once a week on a specified day of the customer's choice, and the delivery is made regardless of order value.

The drop-offs are made in reusable bags, presumably so frequent shoppers don't have to suffer through endless piles of packing peanuts and cardboard. There is also a grocery program called AmazonFresh to offer those foodstuffs and toiletries folks can't find on the Amazon.com site. Together with the typical online storefront, the company can deliver just about anything a consumer can think of.

 

Post continues after video:

 

Now Amazon is recruiting staffers for a companywide launch of this model, according to the Financial Times. The free delivery and lack of a minimum purchase requirement will stick, according to reports, in order to encourage people to use the plan. Amazon is using a small truck fleet currently, but it may have to contract out drivers or partner with a larger shippers like UPS if it wants to roll this out on a large scale.

 

But whether AmazonTote and AmazonFresh will work nationwide is a crucial question. The delivery idea seems to come from the 2009 incorporation of dot-com disaster Webvan into the Amazon family. Webvan went public in 2000 and went bankrupt in 2001 -- but a few years ago, Amazon decided to resurrect the defunct company. In January 2009, Webvan.com was shipping nonperishable items by UPS or other standard shippers, the way typical Amazon.com purchases are handled, but focusing more than 45,000 nonperishable grocery items.

Now it seems Amazon is ready to push Webvan out of the nest once more and see if this company can fly. Some say the timing for Webvan 2.0 via AmazonFresh is much better 10 years later, now that more consumers are wired and that web purchases and delivery are common in U.S. households. Others say Amazon has the scale and shipping know-how to make it work, as opposed to Webvan's start from scratch with leadership that admittedly didn't know consumer staples and groceries that well at launch. And it's worth noting that Amazon pulls in a cool $25 billion in sales each year, so it can afford to burn some cash on this experiment, as opposed to a dot-com startup without a safety net.

On the downside, there's no guarantee consumers will be any more receptive this time around. Also, with gas above $3 a gallon and creeping higher, Amazon will have to be very careful about how tightly it squeezes margins just to get the service off the ground.


And it's not like this is an original idea anymore. Sears is testing home delivery in some markets, and other stores like Wal-Mart are testing in-store collection for your purchases, whereby you just pull up to the curb, load up and drive off.

Regardless of whether the move pays off for Amazon, the fact that it's trying to push into the grocery game is certainly interesting. Even if consumers never take notice, you can bet brick-and-mortar grocery stores and retailers are paying very close attention as Amazon looks to expand beyond its retail storefront.

 

Jeff Reeves is editor of InvestorPlace.com. Follow him on Twitter . As of this writing, he did not own a position in any of the stocks or named here.

1Comment
Feb 6, 2011 7:29AM
avatar
And they don't have their Global Procurement Office in China like Wal*Mart.
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