That strategy is changing as the company expands into the vast
grocery and consumer packaged goods market through its AmazonFresh
business.Now the priority is convenience rather than the lowest prices,
an approach that could limit how much of this market Amazon can grab
from grocery store operators like Safeway and Kroger and other rivals
including Wal-Mart Stores, FreshDirect and the start-up
Instacart.AmazonFresh, which delivers groceries and related items the
same day or the next day, started as a test in Amazon's home town of
Seattle several years ago. The service expanded to Los Angeles earlier
this year and launched in San Francisco Wednesday. If those cities
perform well, the company may expand to many other urban areas and even
outside the U.S. next year.The thought of Amazon entering a new sector
usually strikes fear into the hearts of incumbent companies as they
worry profit margins will have to fall to compete with the Internet
giant's lower prices.But AmazonFresh prices are higher, or similar to
most grocery stores, according to a recent analysis by RetailNet Group.A
basket of almost 30 grocery items from AmazonFresh in Los Angeles cost
$94.80 and AmazonFresh in Seattle charged $99.58, according to a
September survey by RetailNet.Walmart To Go, an online grocery delivery
rival, charged $80.38 for the same products and it cost $84.85 to have
Instacart pick up and deliver those items from Trader Joe's, the survey
found. Online, only Safeway's delivery service cost more than
AmazonFresh in Seattle, at $101.83.A similar basket of groceries cost
less than $90 at physical grocery stores in LA run by Walmart, Trader
Joe's and Target, the survey also found.
AmazonFresh also
charges a $299 subscription for customers in LA and San Francisco. This
makes grocery deliveries free for orders over $35 and it also gives
shoppers access to the benefits of Amazon's Prime service,Shop garage equipments by
our Products provides a wide range of all things suitable for your
automotive shop or home garage. which including free two-day deliver on
most of the other stuff the company sells through its main website."This
seems like a huge hurdle for shoppers to jump just to order groceries
online, and artificially limits their addressable market," said Dan
O'Connor, CEO of RetailNet Group.AmazonFresh prices suggest that Amazon
is targeting the mid-to-premium shopper who usually buys at Costco,
Whole Foods, Bristol Farms and other high-end grocery stores, he
added.Indeed, shares of Kroger and Safeway, among the largest grocery
chains in the U.S., have risen 55% and 85% respectively so far this
year, outperforming Amazon stock.Handling fresh meat and other
perishable food requires an expensive labor base and skill set that
Amazon may not be willing to take on. Instead, the company works with
suppliers,Customer who searched nail wall microcirculation analyzer also
searched: led ring light, cable making equipment,modern lighting jacquard
elastic, sleepy baby diaper. distributors and other third parties for
this important part of the process. But this means the company has to
share more of the revenue with these other players, giving it less room
to lower prices."They are not doing extensive prepping and trimming of
fresh foods. It's a lower touch operation," said Tom Furphy, who helped
run AmazonFresh for about four years and is now CEO of venture capital
firm Consumer Equity Partners. "That means the combination of quality
and good prices becomes tougher.""They will serve a less price conscious
and time-starved customer," he added. "They want people to feel good
about the prices, but it's about convenience rather than the lowest
prices."
Amazon spokesman Scott Stanzel said AmazonFresh is
dedicated to providing low prices, vast selection and convenience.Jim
Cascone, co-owner of Huntington Meats, an LA butcher that supplies
AmazonFresh, said the service has increased sales because a lot of his
customers are too busy to make trips to physical grocery stores."We are
in Hollywood and my clientele are script writers and music people who
are on deadlines," he said. "They don't have much time, but they come in
when they can to tell me how much they like AmazonFresh."But there are
other signs that the LA expansion has started slowly.Shop vintage,contemporary lighting mid-century,
modern and antique lamps, lighting and chandeliers from the world's
best dealers all on one site. Some consumer packaged goods manufacturers
have only got one order so far from AmazonFresh since it launched in
the city in June, according to Spencer Millerberg, CEO of One Click
Retail, which provides data and analytics to CPG manufacturers looking
to sell more online.The velocity of items sold through AmazonFresh in LA
"is rather low from measurements I am seeing," he added.A lot of people
may have ordered through AmazonFresh during the initial trial period
and then not ordered again, explained Millerberg, who used to work at
Amazon."While we can't share specific figures around sales, we think
we've built a unique and exciting service that has incredible value –
and a growing number of customers seem to agree," Amazon's Stanzel said.
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