So Amazon wants to play in the grocery market.
Amazon has successfully revolutionized many industries. We now take the retail sectors that Amazon has changed to be the new norms. So perhaps we should thank them and move on. While moving on one should be sure to observe the endeavors of Amazon as an investment portfolio. Some of the moves Amazon makes will be winner, large winners, while other will be horrific losers. You get where I am going.
Now that we are all on the same page, AmazonFresh screams AmazonMess.
Don’t get me wrong, the grocery business is a large industry. As the entrepreneurs say the sector is ripe for disruption. Though if you take a look around you will see that often times disruption is better left as an idea. The main items in a grocery store have a margin of somewhere around 1 percent. Yes Whole Food does well and deserving so, its Whole Foods. For those of you who do not understand basic business: Whole Foods operates in a niche (organic) and can charge a premium for their products.
By far the strongest argument against this move is the scale is just nonexistent. By focusing on a few items like Amazon has done in Seattle they just do not have the scale. If you can only deliver my egg rolls but not my General Tso’s chicken, I am not ordering. For any real scale to occur Amazon will have to offer everything and with everything comes horrible margins that barely support the fleet of vehicles to deliver their goods.
Many people have made the argument that the populous will fail to move away from the brick and mortar due to the sensations of shopping. The American obsession of touching what you buy is no more prevalent than in the grocery industry. Mom wants to pick the fruit she puts in her children’s mouth. Just like the kiddies want to go to the store to pick out goodies for the week. In the fast paced 21st century that Amazon has built its empire on last minute decision making(one-click shopping), not planning out the weeks grocery list to be delivered by a courier.
By simply stating that Amazon will outperform competitors because they always have many have rationalized the tech giants movement into the space.
Amazon has been known the yield an iron fist in the realm of eCommerce. They are now going up against the big and the baddest at their own game. They are literally going after the bread and butter of Walmart, Target, and the like. This billion dollar bet will be sure to be a tech tale for the books. Last time Amazon tried to step outside their realm and challenge a big player, Apple, they had good reason. They were promoting their entire brand and position in the cloud space. Their move was merely a means to an end. This was to promote the amazon music, movies, and ensure everyone was registered for one-click shopping.
Harris Teeter here on the East Coast is already geared up and ready to giver them a run for their money. I have personal experience with this service and by far am not impressed, nor am I impressed by the cars lining up to pick up groceries at their many location. Essentially HT lets you pay a fee and pick up your groceries without leaving your car. For those who are into channel checks, the number of motor vehicles in line is always zero. Harris Teeter has essentially used this as a way to compete with Whole Foods who is stealing their market share quickly. By offering an additional premium service Harris Teeter can ensure they keep repeat customers.
Amazon has a great business model not based on groceries. They do not need to enter the grocery business to ensure the success of their eCommerce business. So in layman’s terms I am not seeing the risk reward of entering this super competitive market when their are other ventures ripe for disrupting.