Socal will be the first market outside Seattle, where the online retailer has been doing groceries for almost six years. If all goes well, further expansion is expected next year. Actually, Amazon already ships food (we've been getting cereal from them for some time, via UPS), but the new service, called AmazonFresh, will also include produce, dairy and meat. Orders will arrive in insulated containers; deliveries will be made either during a three-hour window when the items are just dropped off or during a one-hour window when customers accept the groceries in person. Delivery charges are $9.99 for anything under $50, $7.99 for orders between $50 and $100, and free delivery for orders over $100. Amazon's expansion is especially interesting in the context of ongoing efforts by the major online merchants to deliver items as quickly as possible - preferably the next day, if not sooner. How will they manage to navigate the freeways? They could start by hitting the road as early as possible. From the Business Journal, which first had details of the program a few days ago:
The packages are put together at an Amazon distribution center then delivered by an Amazon driver in an AmazonFresh truck - not by the post office, UPS or FedEx. In delivering groceries, AmazonFresh isn't much different from other services, including what's offered by Safeway Inc.'s Vons chain in Southern California. But while Vons sells and delivers groceries, Amazon sells and delivers just about anything to AmazonFresh customers: spinach, eggs and a copy of "Moby Dick" or a pair of jeans, all ordered today and delivered to your doorstep tomorrow morning, and all for the same delivery fee. Scott Tilghman, an analyst who follows Amazon for Westwood stock brokerage B. Riley & Co. LLC, said that's how Amazon will make its money - not by selling groceries. "If they make a 1 or 2 percent margin on groceries, but they're able to get a few hundred extra dollars from those same customers buying other products, it's more than covered the cost of that venture," he said.
Roger Davidson, a former grocery executive at Wal-Mart, Whole Foods and Supervalu, said Amazon will struggle to make money from AmazonFresh because fresh produce can easily go bad in storage warehouses and get damaged during delivery - something known as "shrink" in the business. "Will it work? I would bet against it," Davidson said. "The reasons these businesses have failed in the past have not gone away." Still, Amazon is not alone in wanting to expand in the online grocery business. Wal-Mart is testing same-day and next-day delivery of online grocery and general merchandise orders in the San Francisco Bay Area and operates a "highly successful" grocery delivery business in Britain.