A lot of buzz this week about Amazon expanding a long-running grocery delivery program in its hometown of Seattle to the Los Angeles area and what it might mean for food retailers. The answer for now is, not much.
Amazon has demonstrated an ability to disrupt various businesses so any actions it takes has to be viewed with a wary eye. And that is certainly the case with the company’s possible expansion plans for a home delivery grocery service branded as AmazonFresh. Various reports this week have the company extending a two-year-old test in the Seattle market to the Los Angeles area, then San Francisco and more than a dozen additional markets by 2014.
The reports sparked considerable speculation about the company’s motivations, business model and impact on conventional food retailers. The latter concern is misplaced because conventional food retailers have well established food retailing supply chains, food retailing expertise and brands that are synonymous with food. Amazon has none of those attributes and in order to gain even a sliver of market share would need to invest untold billions in infrastructure and a home delivery supply chain just for the opportunity to participate in a low margin, intensely price competitive, mature segment of retail.
Plus, it’s not like shoppers are clamoring for home delivery, either. Sure, there is a segment that is willing to forego selecting its own food in exchange for the convenience and added expenses of home delivery, but it is a small one. That has made it challenging for even well-established retailers to be successful with home delivery.
There is a reason why Walmart has not more aggressively pursued home delivery, despite the fact that its well-established supply chain and network of more than 4,000 stores give it a unique ability to execute a same-day or next-day home delivery program.
Amazon does a tremendous job satisfying shoppers in the e-commerce world and the trust it has earned with customers affords it the ability to offer a wide range of products. That trust means customers would be willing to experiment with the company’s home delivery service, assuming quality and cost were in line with overall market, but Walmart and other conventional food retailers have little to fear at this point.