Amazon to Launch Online Grocery Store

Aryabhata writes "It might sound like a bad flashback to the dot-com days, but news is that Amazon is planning to test the waters with an old idea; the online grocery store!. To its defense Amazon is only attempting this with nonperishables like peanut butter, potato chips, and canned soup implying that there's no refrigeration required--ordinary warehouse shelves will do fine."

Not That Different

To its defense Amazon is only attempting this with nonperishables like peanut butter, potato chips, and canned soup implying that there's no refrigeration required--ordinary warehouse shelves will do fine."
Well, in that case, it isn't different from what Amazon was doing before hand, now is it? Amazon to Sell Stuff Online, Film at 11.

Re:Difference between Amazon & Safeway

All the stuff that Amazon and (to the best of my knowledge) target sell is prepackaged, isn't it? So even if there are germs all over the boxes, it doesn't do anything to the actual food, does it?
Even if cashiers at grocery stores use disinfectant regularly, there still isn't any guarantee a customer didn't take that food item and get flu germs or worse all over it. I'd be a lot more concerned with what other customers might have done to food than the people working there.

Re:Difference between Amazon & Safeway

Dude, if they're touching my peanut butter there is a bigger problem than their failure to wash their hands first.

Nevermind that the behavior of the cashier is essentially for show. If you want to know how "sanitary" your food from Safeway is go at 3 in the morning and watch the shelf stockers.

And of course other customers never touch your food before you buy it, no siree Bob! You might want to start considering your sanitation concerns being, by their very nature, your problem to look after. If you're afraid of catching something from your peanut butter jar wear gloves when you shop and wipe everything down with Vodka before you take them off.

KFG

Re:Difference between Amazon & Safeway

great, so that's another source of super-bacteria.

seriously, that type of attitude is a contributor to the problem.

When someone who is NOT sick sneezes, etc the risk of any type of infection spreading is nil. Now there is always the chance someone has something but doesn't know it, and hence it is prudent to take others into consideration. But this attitude of using disinfectants and antibiotic soaps, etc make things worse, not better when they are misapplied.

Me I think companies should do a better job of convincing people who are sick to STAY HOME. I don't care what environment they are in, even if they suppress most of the symptoms they are the ones spreading it to others.

Someone who is sick should NOT be serving the public.

But, if you're overly sensitive, trust me, you don't want to actually know what's in your food.

really.

Peapod

I've never heard of this WebVan company, but the online grocery store that I do know - Peapod [peapod.com] - is still around and, going by how often I've seen their vans parked in some residential neighbourhoods around Chicago, quite successful. And they do deliver perishables.

And the others...

Not to mention tesco.com and ocado.com in the UK (Very successful national online grocery stores run by ... two of the UK's biggest grocery store chains), and the many online organic food delivery box companies running in the UK. Honestly, guys, if "online groceries" gives you flashbacks to 2000 then you are about six years behind the times...

Re:And the others...

I would have mentioned the same (most of the major UK supermarkets do delivery) but the US is a very different market, as brought home to me by someone telling me how their nearest Walmart / major town was . . . 50 miles away. What makes the model work so well in the UK is that most of the population live close to an urban centre.

Amazon also love the UK for that - apparently we're one of their best markets because most things get delivered next day.

Population Density

"Urbanized areas" is a pretty loose term. Do they mean urbanized like NYC? Or urbanized like Dallas, TX?

I used to live near Dallas/Fort Worth. You can drive 200 miles there and never leave an "urban" area, if you drive it East/West. Even North/South it's about 80 miles.

NYC's density is 26720 people per square mile.
Chicago's is 12604/sq mi
London's is ~12071/sq mi.

On the other hand...
Dallas' is 3534/sq mi.
Memphis' is 346.9/sq mi.

So you see, there's a bit of a difference there. Driving distance is indeed a factor for a large portion of the population. You really need a certain density to support this kind of thing on a local level.

Several stores have tried it in the past and failed. Kroger tried it in a few test markets. I was in Huntsville at the time they tried it there, but it only lasted about 6 months. They couldn't get enough people to use it to make it worth hiring more drivers, and they couldn't get the groceries to all the people in enough time to make more people want to use it.

gentlemen, start your engines...

If online grocery shopping gives you flashbacks to failed experiments like Webvan, you are not alone.

In fact, here they come now...

In New York City, we already have that.

It's called Fresh Direct [freshdirect.com].

Re:In New York City, we already have that.

It's success is directly linked to the high density of the population in NYC.

Next frivolous patent...

Ways to dispose of hundreds of thousands of dollars of junk food left over from the cafeteria....

Better sell hard to find stuff.

They could make money selling hard to find items, but not stuff that you can buy anywhere. There are a few things I can not buy locally that I would order if they had it, but I won't buy potato chips from them...

Of course, if this works then I should invest in UPS & FedEx...

Re:Better sell hard to find stuff.

Agreed. I have always thought that someone could do pretty well selling hard to find items food items. There are probably a bunch of people who love food or food items that you just can't get where they currently live. I know there are a bunch of companies that do such on Amazon.com.

For example, I listen to Howard Stern and one his side kicks, Artie Lange, likes "Devil Dogs". I have never seen these things and it turns out you really can't get them on the West Coast. However, a quick search and I found a couple of places that will ship them out to me.

Re:Better sell hard to find stuff.

The groceries are available for free shipping when you order $25 or more, so no worries there from the consumer side - and Amazon drives such high volume through UPS, et al that they get fantastically discounted rates.

I could see this being really useful for bulk sizes of items. Things like cereal, laundry detergent, etc. As long as the price is competitive, it could make a portion of the grocery shopping that much easier.

So?

I already routinely order groceries from Fresh Direct http://www.freshdirect.com/ [freshdirect.com] . Its huge in the NYC area, the selection is broad (far broader than what Amazon is offering), the service is excellent, and the overall experience is excellent.

Re:So?

Oh, sure, until the day the FreshDirect guy sticks his foot in the doorway [gothamist.com] and won't leave until you tip him. :-P Wasn't their policy originally not to accept any tips, ever, expressly to prevent situations like these? Or am I thinking of someone else (Kozmo, MaxDelivery)?

But I agree, on the whole, the FreshDirect experience is hard to beat. Did you ever see those signs at Fairway hanging from the ceiling, bashing FreshDirect and its owner for various injustices apropos nothing? Priceless.

Re:So?

Remarkable. You're comparing a company that delivers to a very, very small area of the country to a multinational company that ships just about anywhere.

What precisely was the point to your post?

mostly items in bulk

FYI, if you browse through the store, you'll notice that almost all the items they sell are economy sized or are packaged in multi-packs. If you just want one bottle of detergent, you're out of luck. If you want to save on 6 bottles at a time, this is the place for you.

Jonathan

Re:mostly items in bulk

It's not just supported. The grocery thing is all about Prime. It's a tool to encourage people to buy Prime memberships, and to give members a reason to order and renew.

To understand this sort of thing you have to think about three issues: supply chains, inventory management and fulfillment. They're the three biggest logistical issues in retail. Actually building stores or finding customers or selling them stuff... a bit further down the list. For a big retail company, huge amounts of money are gained or lost based on those three processes, and small changes there have a far bigger effect than anything that goes on in a store. The supply chain is about getting ahold of the stuff you're going to sell. But getting it in just the right amounts, in the right places, at the right times, with the right number of nines in the probability it'll all happen correctly and the right number of zeroes in the dollar penalty if it doesn't. A "bubble" in the supply chain, where a shipment was late, equals lots of lost revenue -- not just in the store, but in the warehousing and all the disruptive ripple effects. It doesn't take much to disrupt a supply line -- a breakdown in a loading dock, a storm that delays a cargo carrier out of China from making port in Oakland or Los Angeles. You can see why big retailers like Target, Walmart or Amazon are so union-hostile; their systems are extremely vulnerable, and the economic impact of a strike has magnified.

Then there's inventory. If you're in the business of selling stuff, inventory is bad. You have to pay for the shelf it's sitting on, you have to keep it from getting wet or dirty (if it's perishable, you have to pay to keep it cold). And it's depreciating every minute it sits on your shelf, representing a paper loss you have to explain to the shareholders. Plus, it's taxable. Remember how smaller shops used to be out of everything around the end of the fiscal year? If you asked the shop keeper, he'd look a little frazzled and mumble "inventory," 'cause he was trying to get rid of as much as possible of it before the IRS made him pay taxes on it. Big retailers don't do that anymore, because they own so little inventory it doesn't hurt them -- and often they don't own the inventory that's on their warehouse or store shelves at all. The shift in power from the manufacturers to the retailers over the last decade or so displaced the tax burden of ownership back to the manufacturers, who in turn shift it backwards to their own supplies or subsidiaries, often in Asian countries that don't tax physical assets. The ideal arrangement from a retailer's point of view would be for the warehouses to have no shelves at all, but simply to be this giant tube through which products were hurled, changing quantities or packaging a little bit in midair, and never touching the floor once before landing in a different truck on the far side of the tube.

And then, fulfillment. For Amazon, that's putting the items in a box and tossing it into the UPS truck. For a big-box retailer it's putting a pallet of them on a truck and driving it to the store. It's a difference of scale made a little earlier on, but fundamentally it's no different. Products need to be physically located near the point of sale (that's the store the customer walks into or the room their web browser was in, whichever) to get it to them cheaply. That's "near" in terms of cost, which is sort of like physical distance but not precisely. The right amounts of inventory (or better, supply chain infeeds) need to be pre-positioned on transit arteries that can reach the stores with the demand or the shipping carriers' local shipping centers as quickly and cheaply as possible. Good highways, good weather, complaint carriers, cheap labor, and union leaders run out of town by a compliant local government eager for the thousands of low-wage jobs you're promising to bring in. Costs to get the product into customer's hands need to be minimized, whether that's with an effective supply system to brick-and-mortar

Why a flashback?

I've been buying my groceries online for years, and I intend to continue doing so. The food is better quality, there's more choice than my local supermarket and it's way more convenient. In my area right now there are 2 competing online services (that I'm aware of, might be more) so there's even a choice. I'd assumed this kind of service was available everywhere - I guess not.

They already sell some food

Amazon already has a gourmet food store [amazon.com]. This seems like a logical extension to me.

Does that market fit into their portfolio?

I mean, ok. When I order a book and find out there's a movie about this book, maybe I order it as well (or the other way 'round). When I order a computer game based on a movie, it makes sense to try to bundle it with the movie (or a "collector's edition" of the DVDs).

Now where does peanut butter come into play? I mean, I somehow CAN see certain porn movies and peanut butter, but it's not really the thing that comes to my mind when I start browsing Amazon. Where's the synergies? When did it happen to you the last time that you wanted to buy a book and realized "Hey, I also need noodles!"?

Books, movies, games, makes sense. Groceries just don't fit into the fold.

Re: Does that market fit into their portfolio?

Oh, I dunno.

When was the last time you watched The Buns of Navarone, listened to Give Peas A Chance, read The Da Vinco Cod, or saw Bring Me the Bread of Alfredo Garcia?

If only...

Now, if only they could find a way to get the food through the computer, and stuff it right into my face, I wouldn't have to do all that damn walking...

Re:If only...

Isn't that what FTP is for? The Food Transfer Protocol?

Re:since no perishables

I doubt Amazon has the shipping volume to garner such deals.

plenty in the UK

In the UK tesco (www.tesco.com) have been doing online groceries for years - as have Ocado.

Re:plenty in the UK

Iceland, Asda, Sainsburys...the list goes on. This is nothing new in the U.K. and I'm surprised it's not being done in the States.

Makes sense with their other infrastructure, too

Amazon already also has partnerships where they set up transactions with other businesses (e.g., their whole used-book system). In some places (e.g., Boston) grocery chains are still doing online orders and deliveries. (It has a reasonable ROI if you already have the food storage; delivery people and a web site to get the segment of the market that just wants food to show up.) So the next step is for Amazon, after you've specified your location, to offer fresh food if they've got a partner in the area. I don't see it leading to a loss for either business, relative to the status quo, so it's a perfectly plausible move.

Correlation between Reading habits & Eating ha

Hmm.. I wonder what they will deduce from correlating my reading habits with my eating habits.

Bulk goods == expensive shipping

I really don't think this makes sense.

If there's one type of goods which I would like to order online and have delivered to my door, it is bulk goods. A box of 12 1L cartons of orange juice; a dozen 2L bottles of diet coke; a 4 kg box of laundry detergent. These can sit on my shelves for months, but they're bulky, heavy, and generally annoying to handle. I'm doubt I'll ever buy tonight's dinner from an online grocery store, but I would be very happy to buy next month's laundry detergent.

Unfortunately, the very nature of these goods which makes me want to order them online and have them delivered makes them impractical for a company like Amazon to handle. Products like this tend to be are at the very low end of the $/kg scale; they are exactly the sort of products which need to be shipped in large quantities to local warehouses and then delivered locally -- not packaged into individual deliveries at a central warehouse and then shipped separately halfway across the country.

The reason an online bookstore works so well is that the book market is characterized by low turnover, high profit margins, and high $/kg ratios. Grocery stores have high turnover, low profit margins, and low $/kg ratios. Trying to apply a solution designed for bookstores to the grocery store area simply won't work.

Meanwhile, in the UK

...every major super market offers an online grocery service. I have five available in my area. They're fast (next day, some same day), accurate and cheap; £5 for delivery last time I checked. Some even bringin the shopping and put it away for you.

Click and Motor

Fresh Direct is popular, and apparently successful, in densely populated neighborhoods like mine in NYC. Even though there are grocery stores sync'ed to the local neighborhood within a few walking blocks, all over the city.

Some competition from Amazon might force down the prices, and produce some new innovations for better service. And it will double the number of doubleparked giant delivery trucks clogging previously residential-only streets that rarely took deliveries.

These delivery services should deliver only after 8PM, when people are at home, and traffic congestion is lighter, and the double/parking has settled down. Getting that setup for residential zones would help make it more obviously better in commercial and mixed zones. Eventually we can have deliveries only between 8PM-6AM, and use the full capacity of our roads, even increasing it by lowering wasteful congestion.

A great combination of efficiency and convenience, at every level.

No Mountain Dew

We should all boycott this new venture. They do not sell Mountain Dew!

Most UK supermarkets have done this for years

The main difference being, of course, that they're already in the grocery business, and so have no problems with perishables. In fact, I ordered my groceries online from Tesco earlier; it's so much quicker and more convenient than actually going there. Of course, you have no control over the quality of the fresh items that are picked (although I generally have no complaints). Also, if they don't have something you ordered they'll substitute something similar, which isn't necessarily to your taste. You're entitled (expected, really) to refuse anything you don't want though if that does happen.

There's a charge for the service, of course (about 5 pounds), but it saves so much time and hassle it's generally worth it (not to mention that it massively cuts down on the temptation to impulse buy).

Pushed by Google?

I can't help think that they've been pretty much forced to expand their services while they can.

Even now, if I were to buy a book, I'll just google it and find the amazon link from there. Thats advertisement expense that Amazon is losing right there - more importantly Amazon has stopped being my first resort for book searches though majority of my purchases might be still from there. Amazon would probably want to gain that "first site you go to" share. And if they stick arnd with just books, whereas google offers everything (including Amazon links - which obviously they cant afford to take out), they might start to lose a bit of relevence. And obviously google's plan to scan the worlds books is a very visible threat.

It's an experiment -- nothing more

These types of goods are commoditized to the point that no one -- not even Amazon -- will be able to gain significantly better economies of scale than are already present. The margins are just too thin. As others have mentioned, Amazon is already at a disadvantage because of the shipping.

Most of the traditional grocers gave up on trying to compete with Wal-Mart on price long ago and are looking for new ways to differentiate the customer's shopping experience instead. Been in a Wegmans [wegmans.com], Whole Foods [wholefoods.com], or one of the new A & P "Fresh" format stores (A & P Fresh, Waldbaums Fresh etc.)? It's all about ultra-impressive super-clean 100K+ sq. ft. stores, organic foods, in-store cafes, etc. coupled with a progressive (for retailers anyway) use of technology. With many traditional low-end grocers going under, selling off large numbers of stores or re-orging (Winn-Dixie, Food Lion, etc.), the rest are content to let Wal-Mart have the low-income demographic and aim squarely at capturing upper-middle class and above shoppers' dollars. These shoppers have proven that they're willing to pay a bit more for a high-quality shopping experience. Amazon's approach will add some more content to their own store (the ultra-important "long tail") but will have little effect on the grocery biz.

Disclaimer: I work for a retail software vendor.

Used & New

I'm okay with this idea so long as there isn't a Used & New grocery section, like for the other items they sell.

Top Ten List (no not Letterman's)

Every top ten item is a diaper, #11 is Bounty towels which I suppose could be used as diapers, then it is back to diapers again until the fertility test #14 and razors at #15, then it's all diapers and babywipes again to round out the top 20.

http://www.amazon.com/exec/obidos/tg/new-for-you/t op-sellers/-/grocery/16310211/102-8388649-7401761 [amazon.com]