Will L.A. Love AmazonFresh?
Even a broken clock is right twice a day, so it appears as though all the predictions that AmazonFresh will expand beyond Seattle will soon be proven correct, perhaps as early as this week.
According to reports, AmazonFresh has chosen Los Angeles as its first population dense market, with San Francisco following later in the year.
While some question whether Amazon can make a go of an online grocery business with razor thin margins and high shrink rates, others maintain the venture is really about add-on sales of higher margin items as part of the e-tail giant’s plans to eventually roll out same-day delivery on a national scale. In an April RetailWire poll, 82 percent said adding groceries was somewhat (35 percent) to very important (47 percent) for Amazon to achieve the scale needed to support same-day delivery on a widespread basis.
Count Manfred Bluemel of Zeitgeist Research among those who think AmazonFresh can pull it off. "Grocery is a frequency business. If Amazon can deliver to consumers’ homes two or three times a week, they can up-sell other items," he told Reuters.
Discussion Questions
Is Los Angeles the right market for AmazonFresh to begin its expansion beyond Seattle? From which companies in the L.A. market will Amazon find it hardest/easiest to grab share?
Amazon has proved that they can scale their business in a number of different ways. They are not afraid to innovate—we use their servers for cloud based computing.
The grocery business will enhance their logistics chops, while helping them enter another retail path.
The service is likely to have the greatest appeal to a dual working couple or single males/females without children. Both are growing portions of the demographic population.
How much will Los Angelenos pay for convenience? Looking at the prices that Amazon is charging in Seattle and comparing them to prices in LA, Amazon is significantly more expensive. With the myriad of grocery options currently available in LA, it may be difficult for Amazon to establish its grocery business here.
Should it catch on, Amazon will probably hurt traditional grocery more than other channels.
Amazon’s potential for success hinges on its ability to deliver quality produce, meats and prepared foods. LA is the country’s most competitive grocery market. There may be a niche for Amazon. Will it be enough for them to justify the cost of entry?
Seattle has been a 5 year test market and indications are that Amazon has garnered a 5% SOM and is making a profit. The advantage of Amazon over other online food retailers is the ability to deliver high margin items like electronics at the same time.
Speed, convenience and price will represent Amazon’s differential advantage in these new selected MSAs. Amazon’s customer intimacy systems will enable it to replenish faster. Shipping fees will be mitigated by subscription fees, continuity of purchase programs, and the previously noted bigger baskets, fueled by a bigger basket of food and non food products.
Most LA food retailers will feel the effect of Amazon. The extent of Amazon’s impact will be a function of competing retailers’ omni-channel presence.
Yesterday I read a story that spoke of Costco’s continued gains with value added services like gasoline driving people into their stores. Amazon is following in the same footsteps. Grocery is a difficult market, as people like to look, touch, and inspect their lettuce.
L.A. is going to be a difficult market in that everyone drives. Literally everyone. Everywhere. All the time. Especially on the 405. So deliveries will be flagged with high gas prices and traffic. The idea of getting something at your door as opposed to driving is tempting, and Amazon has already proved its system valuable. AmazonFresh will have a difficult time with grocer staples like Ralphs, Pavilions and Whole Foods, big boxes like Costco, and retailers such as Target. This will be very interesting to see how it plays out.
Amazon will hammer away with their deep pockets to carve out a niche for themselves. They will run into many problems, but I’m sure over time, they will gain a small percent of market share in fresh foods, for the time-starved, high-income folks.
That said, it will only work in densely populated areas, and I’m sure that is okay with Amazon, as the cost of delivering rural would be prohibitive. The name says it all, and we need to adjust to all the new players in the crazy supermarket business.
Yes. L.A. will love this, but it will very costly for Amazon with fuel prices at peak levels in SoCal. Over time, Amazon will capture a small percentage of the grocery business, but the potential for higher margin add on items that will continue to add substantial growth to the top line for Amazon is very attractive.
“Los Angeles as its first population dense market.” Huh? I think we have a terminological problem here: in my dictionary, density translates to a large number (of people) in a small area; LA has the former, not the latter (indeed it’s often cited as the prototype of the sprawling low-density city). More recently, it’s become known for traffic congestion. So by those…you know, important…criteria, this seems like a spectacularly bad choice. But the area also has plenty of wealth and a love for novelty, and given Amazon’s seeming disinterest in traditional metrics like…you know, profit…who knows?