Amazon to Get Into Grocery Delivery Game

Will resurrected Webvan business flop 10 years later?

It’s been a great few years for Amazon.com (NASDAQ: AMZN), with an estimated 40% sales growth in 2010 and its stock up 250% in the last two years. The breakout success of its Kindle e-reader and continued strength in its online retail business has made Amazon one of the top stock picks on Wall Street. But not content to rest on its laurels,

Some say it’s going to revolutionize Amazon’s business model as it takes on brick and mortar retailers like Walmart (NYSE: WMT) . To others, this has shades of a dot-com flop that bled cash until it went bankrupt.

AMZN has been testing a delivery service, AmazonTote, in its hometown of Seattle since last summer. The program involves free home delivery once a week on a specified day of the customer’s choice, and the delivery is made regardless of order value. The drop-offs are made in reusable bags, presumably so frequent shoppers don’t have to suffer through endless piles of packing peanuts and cardboard. There is also a grocery program called AmazonFresh to offer those foodstuffs and toiletries folks can’t find on the Amazon.com site. Together with the typical online storefront, the company can deliver just about anything a consumer can think of.

Now, Amazon is recruiting staff for a “company wide” launch of this model according to the Financial Times. The free delivery and lack of a minimum purchase requirement will stick, according to reports, in order to encourage people to use the plan. Amazon is using the small truck fleet currently, but it may have to contract out drivers or partner with a larger shipper like UPS if it wants to roll this out on a large scale.

But whether AmazonTote and AmazonFresh will work nationwide is a crucial question. The delivery idea seems to come from the 2009 incorporation of dot-com disaster Webvan into the Amazon family. Webvan went public in 2000 and went bankrupt in 2001 — but a few years ago, Amazon decided to resurrect the defunct company. In January of 2009, Webvan.com was. shipping non-perishable items by UPS or other standard shippers, the way typical Amazon.com purchases are handled, but focusing more than 45,000 non-perishable grocery items.

Now it seems Amazon is ready to push Webvan out of the nest and see if this company can fly once more. Some say the timing for Webvan 2.0 via AmazonFresh is much better 10 years later, that more consumers are wired and that web purchases and delivery are commonplace in U.S. households. Others say Amazon has the scale and shipping know-how to make it work, as opposed to Webvan’s start from scratch with leadership that admittedly didn’t know the consumers staples and grocery space that well at launch. And it’s worth noting that Amazon pulls in a cool $25 billion in sales each year – so it can afford to burn some cash on this experiment, as opposed to a dot-com start up without a safety net.

But on the downside, there’s no guarantee consumers will be any more receptive this time around. Also, with gas over $3 a gallon and creeping higher, Amazon will have to be very careful about how tight it squeezes margins just to get the service off the ground. What’s more, it’s not like this is an original idea anymore – Sears is testing home delivery in some markets, and other stores like Wal-Mart are testing in-store collection for your purchases where you just pull up to the curb, load up and drive off.

But regardless of whether the move pays off for Amazon, the fact that it’s trying to push into the grocery game is certainly interesting. Even if consumers never take notice, you can bet brick-and-mortar grocery stores and retailers are paying very close attention as Amazon looks to expand beyond its retail storefront.

Jeff Reeves is editor of InvestorPlace.com . Follow him on Twitter . As of this writing, he did not own a position in any of the stocks or named here.


Article printed from InvestorPlace Media, https://investorplace.com/2011/01/amazon-nasdaq-amzn-home-delivery-grocery-groceries/.

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