Amazon has had an ongoing experiment for the past half decade called AmazonFresh, which offers grocery service and delivery of fresh produce to customers in its home base of Seattle. That program is on the verge of a significant expansion, according to a new report from Reuters today. Amazon is looking to offer AmazonFresh-type services in markets outside of Seattle later this year, including L.A. and San Francisco, with 20 other new markets on the roadmap for 2014, including some beyond U.S. shores.
The continued expansion will depend on how well things go in the first two non-Seattle markets, Reuters reports, according to two sources familiar with Amazon’s plans. Grocery represents a massive potential untapped market, as grocery retail sales totaled $568 billion just last year alone, according to the report. That’s a big chunk of change, and one that Amazon might be more interested in as it moves into a more dominant position in terms of the sale of non-grocery goods and electronics. For Amazon, continued growth is a key metric. It experienced growth last quarter that would have been impressive for any company, for instance, but it was off its previous feverish pace, which resulted in some analysts flagging it as a stock to watch cautiously.
Grocery would indeed be a massive market that Amazon still has the power to disrupt, as existing providers like Wal-Mart, Whole Foods and others still generally use the tried-and-true brick-and-mortar means of selling to customers. There’s a reason for that: as the Reuters report notes, grocery has proven relatively impervious to attempts to turn it into an online business thus far, mostly because of immense costs of keeping inventory on hand, factors like spoilage that don’t affect other goods, and delivery complications (refrigerated trucks, for instance).
Amazon has a lot more resources to throw at the problem than your average startup, including well-funded ones like cautionary tale Webvan, however, and it also has five years experience providing these services on a limited scale in the Seattle market. Bezos has had good things to say about AmazonFresh as recently as 2011, though he did say that there was still room to “tinker” when it came to establishing economics that were “acceptable” for the company.
“We like the idea of it, but we have a high bar on what we expect in terms of the business economics for something like Amazon Fresh in terms of profitability and return on investment capital,” he said during a shareholder meeting in June, 2011 (via GeekWire). “We continue to think about that.”
It looks like Bezos and company may have done a lot of thinking over the past two years and are ready to apply the fruits of that labor to a broader service area. Don’t expect too speedy a rollout even if this report is correct, however, as there’s still a lot of moving parts, and this, more than other endeavors, is likely highly subject to differences in each local market.