Google (GOOG, GOOGL), in case you don’t know, does a lot more than just search. In fact, the company is so diverse that it had to restructure itself into a holding company dubbed Alphabet.
Google Express, which delivers dry foods and other products, is a prime example of why Google could no longer be thought of as “just a search company” anymore, which is why Google will start delivering fresh produce and groceries in select markets later this year.
It may seem innocuous, but GOOGL is playing the long game in a lucrative market on this one. And other tech companies already in the nascent stages of the grocery delivery business, such as Amazon (AMZN) and Uber, should regard Google’s move as an act of war.
Here’s why Google Express’ decision to deliver fresh groceries is such a point of contention with companies like Amazon and Uber, and potentially even with Tesla (TSLA) and Apple (AAPL).
Massive Market
The grocery business is a notoriously low-margin game. Apples, oranges, lettuce, pickles … these are commodities that can be bought anywhere. So why would GOOGL, Amazon and Uber take this market so seriously?
In a nutshell: The market is hyooooge.
Bloomberg reports that online groceries are already a $10.9 billion industry in the U.S., and the market is expected to grow by 9.6% annually through 2019.
Still, that number is dwarfed by sales at traditional U.S. grocery stores, which Statista clocked at $594.4 billion last year.
Therein lies the play; the reason that GOOGL, AMZN and Uber (and maybe even AAPL and TSLA) are licking their chops as they eye the business of online grocery delivery. There are hundreds of millions of people in the U.S., and most of them are awfully busy. Even if they aren’t, running down to the grocery store every week for an hour to load a cart with food, only to do it again a week later, isn’t an activity most are keen to keep in their lives.
Which is why consumers are willing to pay a premium for the convenience.
Driverless Cars, Ride-Hailing and the Future
Although Google Express will limit its experiment to San Francisco and one other city this year, the service could be much more lucrative in the long-term. That’s because Google is famously working on driverless cars, and Silicon Valley’s future prognosis centers around not only driverless cars, but a ride-booking economy like the one pioneered by Uber.
With the exception of Amazon — which routinely loses money on endeavors merely to capture market share — Google, Uber, Apple and Tesla are all working on self-driving cars. Self-driving cars will not only have obvious consumer appeal if the technology is proven safe, but could be absolute cash cows in a rideshare economy. Most household cars are used for about 4% of the day — what else they could be doing while you’re sleeping or working?
On a recent conference call, Tesla CEO Elon Musk was asked point-blank if Tesla would make a ton of money by selling its cars to companies like Uber, or whether Tesla should,
“…just cut out the middle man and sell on demand electric mobility services directly on its own platform?”
After a long pause, Musk called the question “insightful,” and said it was probably best he not answer it directly. I would be shocked if Tesla envisions getting into the ride-hailing business, but not the grocery, shipping and delivery business.
That is to say: Don’t go writing off GOOGL’s two-city grocery delivery service as an immaterial experiment. It’s a major step toward entering a market that could make Google tens of billions of dollars annually within a decade.
As of this writing, John Divine was long shares of AAPL stock. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
