Amazon’s Fresh Approach to the Online Grocery Business

by Matt Klassen on June 10, 2013

Having already cornered the ecommerce market, become a driving force in digital music and streaming video delivery, having found its own little comfortable niche in the ultra-competitive tablet market, on top of rumours it is looking to enter the mobile space, Amazon is really a jack-of-all-trades when it comes to technology, but to really become the centre of our connected everything lifestyle companies like Amazon will need to expand their focus, which is why it should come as no surprise to hear that Amazon is planning a major roll-out of its online grocery business.

For the past five years Amazon has quietly been running its AmazonFresh division in its hometown of Seattle, an online grocery service that delivers “produce, dairy, meat, boxed groceries and other items in insulated containers direct to customers’ doors during appointed one- or three-hour windows,” using this testing phase to find the right balance between convenience and profitability.

Then last week the company quietly announced it is expanding on its Seattle trial run, adding Los Angeles as the company’s second beta testing market, with rumours that San Francisco will be added later this year. But in an online business that has left its fair share of carnage in its wake, does Amazon have what it takes to find that balance between value and revenue?

Over the course of the last five years Amazon has been fiddling with the online grocery game, as CNET writer Jay Greene explains, tinkering with pricing and the sort of goods it offers, “Trying to come up with the right mix that engenders loyalty and still earns a profit.” Amazon CEO Jeff Bezos admitted during an annual shareholder meeting last month that the company has been working hard on the economics of online grocery shopping, but was noncommittal at the time about Amazon’s progress in that regard. Now it looks like Amazon has found the formula it likes, expanding its trial service to L.A.

While many companies have taken a run at offering an online grocery service, most notable examples have failed, leaving many to wonder if Amazon has bitten off more than it can chew. But to be fair, if there’s any company that can manage the narrow profit margins online groceries offers, it’s likely to be the ecommerce giant who has built its entire empire on markets of exactly this sort; markets where no other competitors dare show their faces.

Beyond the slim profits available from such a market, the real advantage to creating a convenient, affordable, and most of all, reliable online grocery service is the potential it has for driving customers to other facets of Amazon’s business.

In fact, as Greene writes, “AmazonFresh has the potential, perhaps more than any other Amazon business, to habituate customers into buying from the company regularly. Unlike buying books, movies, and so much else that Amazon offers, shopping for groceries is a weekly, or even daily, activity. If Amazon can persuade consumers to buy their milk, bread, shampoo and laundry detergent from AmazonFresh, it may well move itself one step closer to convincing them to purchase other items from the company as well.”

Dollars and cents aside, the other boon of an online grocery service is the consumer information it will generate for Amazon, allowing the ecommerce giant to paint a fairly accurate picture of our wants, needs, and interests; information that will serve as fuel for its growing targeted advertising machine.

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Written by: Matt Klassen. www.digitcom.ca. Follow TheTelecomBlog.com by: RSS, Twitter, Facebook, or YouTube.

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