Wednesday, June 12, 2013

Will Amazon Fresh change online grocery shopping?

Interest in online grocery shopping continues and to answer a past Ti brief, Is Online Grocery Shopping About to Take Off in the US? the answer is yes – online grocery shopping is indeed getting ready to take off. Thanks to Amazon.

Despite such thin financial margins, numerous attempts have been made in online grocery delivery. Most have proved unsuccessful (Webvan, the most notorious example) with a few exceptions such as Peapod and FreshDirect.

Amazon’s grocery delivery service, AmazonFresh, has been available only in the state of Washington since 2007. Deploying a fleet of trucks from its refrigerated warehouse just north of Seattle, it delivers to about 80 zip codes.

This week Amazon announced plans to expand its online grocery subsidiary to Los Angeles. In a move that may help improve financial margins it is offering over 500,000 items including consumer goods and electronics.

Delivery options will include same day or overnight service. The limited options will likely help the company manage routes and events such as when a customer is not at home more effectively.

For a limited period, there will be no delivery charge. However, interestingly enough, after 90 days, customers will eventually be upgraded to “Prime Fresh” membership, a $299/year fee that promises speedy delivery on orders totaling more than $35.00.

Many industry insiders are not convinced that this service will be successful. Even Walmart, who has been testing its own online grocery service in California for over a year is still not convinced there is sufficient demand for such services.

Still, the possible implications of this expansion are quite interesting. First, will people be willing to pay $299 a year for delivery services? Maybe. Amazon has achieved great success with Amazon Prime and according to its research, Amazon Prime customers tend to spend twice as much than those that are not Prime customers.

Second, Amazon is employing its own fleet of delivery vans for service. What will this mean for FedEx, UPS and even USPS? There will likely be some impact particularly as Amazon Fresh begins to deliver non-grocery items. It does make one wonder, however, if this is perhaps a precursor for the development of a possible nationwide delivery network - particularly as Amazon Fresh is expected to expand into at least a dozen metro areas by the end of 2014 according to Reuters.

Lastly if it is proven successful, will same day delivery become the new expectation? Probably. With all the hype same day delivery has been given in the press, it is a matter of time before customers are conditioned to expect such an option. Google, Ebay, Walmart and others have been testing same-day delivery services. In fact, Ebay just announced plans to expand its Ebay Now services to New York in the coming weeks and then into Chicago and Dallas in the next couple of months. Evidently there is indeed a growing demand for such services.