Amazon expands grocery delivery again

Online giant's AmazonFresh service moves to San Francisco
12/11/2013

Just six months after expanding its nascent fresh grocery delivery service to Los Angeles, AmazonFresh has moved to a third city: San Francisco.

Amazon.com confirmed the move Wednesday, promising same-day delivery for orders placed by 10 a.m. and next-day delivery for those placed after that time.

READ: Grocery Gateway to deliver craft beers this holiday

Shipping is free for orders over $35, but AmazonFresh users in San Francisco and Los Angeles have to pay $299 a year for the service.

That comes with a subscription to Amazon Prime, a $79-per-year service that includes free two-day shipping on many Amazon items and access to the company's video streaming selection.

Amazon said it will give customers in San Francisco a free 30-day trial. Customers generally pay for each delivery, but are able to qualify for free delivery if they order frequently over the course of a month or spend over a certain limit.

AmazonFresh initially launched as a test in Seattle six years ago. It wasn’t until June of this year that a second city–Los Angeles–was added. Pricing in Seattle is different.

The fact it took only half a year to expand again suggests Amazon is happy with the service and has solved any major problems. But there's no clear evidence Amazon is making money on grocery delivery.

Some reports have suggested Amazon would be happy if the grocery service broke even.

Amazon officials have hinted that grocery delivery is primarily a way to increase interaction with shoppers in the hopes that they will buy other, more profitable, goods than food.

On its home page on Wesdnesday, AmazonFresh San Francisco was promoting digital cameras along with broccoli and avocados. The site carries 500,000 products.

Also on the website Wednesday was a special section called "Smucker's Holiday Baking" that featured a variety of Smucker's jams and other products.

Amazon had earlier said that it would like to operate a grocery delivery service in 20 markets by the end of next year. Some of those markets would be outside the United States, officials said, leading to speculation that AmazonFresh might come to Canada soon.

On Wednesday an Amazon spokesman said the company is evaluating whether it will expand into other markets. ``We recognize the economics are challenging,'' said Scott Stanzel, ``so we will remain thoughtful and methodical in our approach to expanding the service.''

In October, Amazon started selling some 15,000 dry groceries in Canada at Amazon.ca/grocery. Items included baby food and formula, snacks, baking goods and coffee. But these items are couriered to customers home. AmazonFresh employs its own fleet of trucks and deliverymen.

READ: Amazon adding groceries in Canada

Expanding AmazonFresh to a city such as Toronto would put the world’s largest online retailer in direct competition with Longo’s Grocery Gateway delivery service and could, presumably, force national chains such as Loblaw to counter with their own online supermarkets.

In the U.S., competition in the online grocery delivery space has been growing. Amazon's competitors include FreshDirect, Instacart, Peapod and Safeway, who have been tending to customers who want to avoid the supermarket.

Outside of groceries, eBay Inc.'s eBay Now service has been delivering items from local stores to customers in about one hour. The service is available in New York, Chicago and Dallas, and delivers everything from iPads to towels to tools.

But Amazon doesn’t seem to have made a dent in the sales of U.S. grocers yet. In Seattle, AmazonFresh’s sales are estimated at only $66 million, according to RetailNet Group, or about 3% of that city’s total grocery sales.

However, Retail Net Group found that AmazonFresh’s customer retention rate is “very high” in Seattle and that “once acquired, customers shift large shares of their grocery wallet to Amazon.”

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