Online retail giant Amazon is said to be preparing to take on the well-established US food market with a major roll-out of its fresh grocery business, a move that could make other players sit up and take notice.
It has been quietly developing the venture for years and is only operational in its home city of Seattle at present, but could be replicated into other urban areas, if reports are to be believed. The e-commerce firm has plans to extend its Amazon Fresh service, which delivers dairy, fruit and meat produce, to California, according to Reuters.
The retailer will start with Los Angeles and San Francisco and could potentially launch in 20 other urban areas – inside and outside the US – in 2014, sources told the publication.
While food is a low-margin business, Amazon has opened around 20 new distribution centres since 2010 across the US and operates one of the most sophisticated distribution chains in the world. It could potentially outperform similar online grocery services by delivering orders for higher-margin items like electronics at the same time.
US grocery chains such as Safeway Inc, Kroger and Whole Foods Market, as well as general merchandise retailers like Wal-Mart and Target could be in the firing line if Amazon follows through with its plans.
And it’s not like Amazon does not have the know-how given its sheer scale and the sophistication of its distribution service. According to Reuters, the grocery business in the US generated $568bn in retail sales last year. No wonder then it is keen to search for new, large markets to enter as it tries to maintain its current growth rate and test what it has learnt from Seattle elsewhere.
While online grocery sales, however, remain small – 5% of total grocery sales in the UK and US, according to The Guardian – the sector is growing rapidly. Forrester Research estimates online sales of food and beverages will be worth $15.4bn in the US this year.
But Amazon will not be alone in attempting to crack the US online grocery channel. It will face competition from the likes of Ahold-owned Peapod in Illinois, which claims to be the largest internet grocer in the US on its websitem as well as FreshDirect in New York, part-owned by UK retailer Morrisons. This operation delivers food in some parts of New York City and its looking to expand its service into the Bronx.
Then there is Wal-Mart. The retail giant is currently trialling a same-day and next-day online grocery delivery service for food and general merchandise in San Francisco. It may now be looking to speed up its plans if Amazon does indeed make its move.
While Amazon appears to have a voracious appetite for growth and its diverse product mix might provide an edge over food-only rivals, competition with the likes of Wal-Mart looks certain to intensify.