Amazon Grocery Delivery Service

David Weintraub - 06:15am Dec 14, 2007 PST
Guest User

> Your first thought, like mine, is probably, "Great. They're taking
> an idea that dramatically failed several years ago and just throwing
> more money at it." But I think Amazon occupies a unique position in
> the marketplace that could allow them to succeed where Webvan and
> others failed. Amazon ships millions of items a day.

One of the strangest things about the grocery business is that
supermarkets make the most or their money merely displaying their
wares and not actually selling them. Companies pay for the privilege
of shelf space. Endcaps are prime territory. A display in the middle
of the aisle will cost you. And, if you want your stuff at eye level
and not stuck on the bottom shelf? Pay up! Heck, even the prerogative
of just having your product in the store costs the manufacturer money.

It's one of the reasons why I can't see a pure grocery delivery
service being able to compete. Such a service is giving up a lot of
revenue from product displays. Storing perishables can be quite
expensive and you'll have to have a local place to be able to do this.
You can't ship from a nationwide warehouse as you can with books.
Currently with non-groceries, Amazon doesn't even have to stock slow
sellers. These are shipped directly from the factory (or publisher as
the case maybe).

> If you can combine high-margin items that Amazon already sells,
> conserve shipping through internal operations (thus shifting the few
> dollars an item from shipping companies to your own trucking fleet),
> and add grocery to provide regular neighborhood stops and a tiny
> margin, you might have a winning model.

Books and electronics can be shipped out of a central warehouse.
Groceries have to be kept locally. Besides, do-it-yourself delivery is
becoming more and more a thing of the past. FedEx and UPS are even
taking over inventory control and repair for many companies. You have
an HP or Compaq computer that is being sent back for repair, chances
are it never gets to HP. Instead, FedEx has a contract with HP to
service most of their PCs. The PC is shipped to Memphis, and a
reconditioned one is shipped back out.

I think the model by Peapod is what will be happening to grocery
delivery services. Back in the 90s, Peapod was going to offer
nationwide delivery of groceries. Instead, they now merely work with
local supermarket chains. The supermarket chains can do act as the
local warehouse while Peapod handles the delivery logistics. This
allows the chains to make their money with "displays" while offering
another service to their customers.

David Weintraub