June 17, 2013
Amazon recently announced plans to offer online grocery shopping in Los Angeles. While the $79 Amazon Prime provides customers with two-day shipping and streaming TV shows and movies, the $299 AmazonFresh Service, originally tested in Seattle, will additionally enable members to order groceries that will be delivered to the door in hours. Retail giants such as Walmart and Costco have suggested that online grocery delivery is a nearly impossible business.
“The new Prime tier is part of a big expansion of the AmazonFresh online grocery business,” explains Reuters. “Later this year, Amazon plans to launch in the San Francisco Bay Area and, if that goes well, the company may enter 20 other urban areas in 2014, including some outside the United States.”
The $299 subscription “doesn’t just buy access; it also binds shoppers to Amazon as their overwhelming source of all Internet shopping,” reports The Atlantic. “Being the starting point for online purchases is everything: Google’s biggest source of online advertising comes from searches with a shopping intent. Why look anywhere else when only Amazon will get it to you today?”
“It will help to make Amazon the starting point for online purchases — more than it already was — and give consumers even less of a reason to shop anywhere else,” said Morningstar equity analyst R.J. Hottovy. A recent Morningstar study indicated that Amazon Prime members spend more than double what non-Prime customers spend online.
Amazon’s infrastructure strategy has shifted from establishing distribution centers in cheap states to purchasing warehouses in larger cities. This could eventually lead to online consumers receiving products within hours, rather than days.
This ambitious strategy is not unexpected from Amazon CEO Jeff Bezos, who has patiently waited for past approaches to turn a profit over time. And since the company is now dominant in cloud and e-retail, its infrastructure can be viewed as a quasi-monopoly, which The Atlantic compares to the cable companies that “can charge such a mark-up on the communications bundle because they have a massive infrastructure advantage in a high-barrier industry.”
AmazonFresh “offers a unique package of services that takes advantage of the company’s lead in digital and physical infrastructure: infinite books, fast shipping, fresh groceries, free streaming,” notes the article. “Who in the world would try to build a competitor to this strange amalgam of hugely expensive and hardly profitable services? No one. And, for Bezos, that is precisely the point.”
Amazon Rolls Out 3D Printing Shopping Section, CNBC, 6/12/13