Amazon Expands Fresh Grocery Delivery

AmazonFresh moves into Los Angeles, although the online retailer’s fresh grocery delivery service has yet to turn a profit.

June 06, 2013

SEATTLE – Amazon.com yesterday began offering fresh grocery delivery to Los Angeles, the first expansion beyond its test run in Seattle, the Wall Street Journal reports. 

The expansion for Amazon of its AmazonFresh business is thought to be the beginning of a broader expansion. It has been running the business in Seattle, it’s hometown, for nearly six years. The service offers home delivery of produce, dairy, meat and groceries within one- or three-hour windows.

The Wall Street Journal speculated that the expansion poses risks for Amazon, though it conceded that the online retailer “has demonstrated a willingness to lose money on new ventures to gain a foothold.”

At the company’s annual shareholders meeting last month, Amazon CEO Jeff Bezos acknowledged the service has yet to make money. "They have made progress on the economics over the last year," he said in response to a question about the division.

Industry insiders said if anyone can make the venture profitable, it is Amazon. 

"The concept of delivering everything to your doorstep is back to the past," said Fiona Dias, chief strategy officer for e-commerce site ShopRunner. "If Amazon can bundle low-margin groceries and other high-margin Amazon items, it could make the economics much more compelling." 

Indeed, in Seattle, Amazon customers can combine their apple and butter orders with 100,000 Amazon items including video games, toilet paper and motor oil.

Many AmazonFresh items can be delivered the same day they are ordered. Suppliers who participate in the program have noted a substantial sales lift. 

Chris Porter, owner of A La Mode Pies in Seattle, said he was selling more Mexican chocolate mousse and strawberry rhubarb confections, a result of an AmazonFresh program offering delivery of prepared foods from restaurants, bakeries and other small businesses. "It's been great for my business," Porter said. 

Amazon keeps about $2 of every $9 pie Porter sells, he said. Other vendors said the percentage can be as high 40% of the sales price.

"It's a very efficient operation," Porter said. "I am not sure it could work, but if they expanded nationally, I'd love to be a part of that."

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