Amazon.com is Taking Over the World… of Groceries
Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Supermarkets compete to sell groceries in a high volume, low margin environment in towns of all sizes. In 2011, the Food Marketing Institute estimates that this industry generated around $584 billion in sales in the United States. The total market opportunity is so large that there has been a steady stream of competitive developments over time. Among them, warehouse stores such as Costco (NASDAQ: COST) and discount retailers such as Wal-Mart (NYSE: WMT) and Target (NYSE: TGT) have rapidly rolled out competitive grocery selections. Whether it is the bulk-purchase model like Costco or the everyday low prices made possible by Wal-Mart and Target's scale, dominant retailers have been waging war against traditional supermarkets in recent years by seeking to provide the lowest prices possible. The obsession with price has been amplified in recent years as economic pressures have made household budgets tighter than in the past; as a result, Bloomberg conducts studies comparing the pricing of the major players and has concluded that customers "will be driven to whatever store offers the better value."
Amazon.com Enters the Fray
As this blog series is intended to illustrate, Amazon.com (NASDAQ: AMZN) seeks to disrupt retail across multiple sectors. Regardless of competition and the nature of the established business model, Amazon.com is able to offer an array of appealing offerings to customers that leverage the company’s network of warehouses to provide a differentiated service to consumers from the established brick-and-mortar competition. In a recurring trend throughout this blog series, which has covered everything from pet supplies to daily deals, Amazon.com has accomplished this through a trend of gaining a foothold in the industry through a variety of strategies including those described below:
- Amazon.com – Within Amazon.com’s core website, the company now offers over 593,000 items within the grocery section. While this is a vast selection, where Amazon.com differentiates itself is that 74,000 of these items are eligible for free shipping either through Amazon Prime or super saver shipping with a $25 purchase.
- Subscribe & Save – A growing component of Amazon.com’s retail assortment participates in a program known as “Subscribe & Save.” Customers can receive a 5%-15% discount off of Amazon.com’s regular price and receive free shipping if they sign up for regular delivery of an item (anywhere from once a month to once every six months). There’s significant convenience in this automatic delivery feature, the automatic deliveries can be canceled at any time and there are convenient email reminders prior to shipment that allow customers to skip deliveries with a single click. Within the grocery section of Amazon.com, 26,000 items qualify for Subscribe & Save.
- Amazon Fresh – Amazon.com has been fine tuning a full-service grocery solution with same-day appointment-based delivery in the company’s hometown of Seattle, Washington. Known as AmazonFresh, this service provides a full range of products including an impressive array of organic foods and fresh meat and produce. There is plenty of speculation that Amazon.com’s recent significant expansion of its distribution centers will allow it to roll out AmazonFresh offerings to other markets, beginning in California.
- Vine.com – One of the websites rolled out by Quidsi, an entity acquired by Amazon.com in 2010, is a full-service web-based organic grocery store called Vine.com; this site features popular organic brands such as Annie’s Homegrown and many others. Vine.com is founded on a strict green philosophy that goes far beyond a focus on organic foods that differentiates it from the selection of stores like Target.
Foolish Bottom Line
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BrewCrewFool owns shares of Costco Wholesale and Amazon.com. The Motley Fool owns shares of Amazon.com and Costco Wholesale. Motley Fool newsletter services recommend Amazon.com and Costco Wholesale. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.