Tuesday, July 23, 2013

Amazon's Strategic Plan By Entering The Online Grocery Business

I read several articles on the web lately about Amazon's strategy to enter the Grocery Retail Market. I actually already wrote a blog post not so long ago about Amazon expanding their Amazon Fresh concept to new cities. Forbes.com has an interesting theory about these investment: Amazon is aiming to propose same-day delivery thanks to its ability to sell fast moving goods. Indeed, selling groceries, especially fresh products, imply Amazon to set up a supply chain allowing fresh products like fruits or meat to stay for the shortest period of time in warehouses, but also to deliver them with short notice.

Amazon is not looking for high margin rates, especially because grocery already works with razor thin ones:
“No one has cracked the nut of grocery home delivery in the U.S.,” wrotePaula Rosenblum, managing partner, RSR Research in a recent RetailWire online discussion. “The low margin nature of the business, coupled with the need for fuel-guzzling refrigerated vans and trucks, make it very hard to do — and that’s in ‘easy’ cities, which means relatively new homes, no five floor walk-ups or winding stairways.”

Mr. Heckman added, “It could also mean that delivery fees are lower, order size minimums are waived, and it certainly could mean that home delivery and in-store pick up will never pay out using traditional metrics and full allocated costs.”

Amazon has already started in France to sell fast moving goods, but mostly the pricy ones, with slow frequency of purchases: baby food and diapers for example.

What is interesting with this strategy, is that it somehow looks like a revert strategy of what hypermarkets have thrived on for years. Hypermarkets proposed non grocery products at discounted prices in order to attract foot visits for customers eager to find great deals, and then to sell food, which is where their core business were.

But now, Amazon wants to do the opposite: Attract people with grocery food, thanks to the home delivery service they can set up, in order to sell more of their core business item.