What’s happening right now with Alphabet Inc (GOOG, GOOGL) and Amazon.com, Inc. (AMZN) right now is incredible.
It reads like the plot of a National Lampoon comedy: Two of the most dominant companies in Silicon Valley racing to grab market share in a newly created vertical. And of all things, GOOG and AMZN are at each other’s necks over same-day grocery delivery.
Lazy millennials everywhere, rejoice!
Actually, hold that thought … only lazy millennials in certain parts of San Francisco and Los Angeles should rejoice. Those two cities just learned that Google Express will now begin delivering fresh, same-day groceries in their areas.
Why, you might wonder, should Amazon investors worry about this, and what does this have to do with Alphabet stock?
GOOG & AMZN: Seizing a Growing Pie
Yes, the grocery business is notoriously low-margin, but it’s absolutely massive. In the U.S., the market is estimated at $594.4 billion as of 2014; and at $10.9 billion, the online grocery market size is nothing to scoff at either. What’s more, it’s projected to grow by 9.6% annually through 2019.
Plus, Google will line its pockets with annual membership fees, which will run $95/year. Members will still have to pay $2.99 and up per order and have a minimum delivery of $35. Judging by how its priced, Google must think members will order quite frequently, since non-members only have to pay $4.99 and up. (The “and up” part depends on how quickly you want your fresh broccoli in your hands). Google Express will deliver items from Whole Foods (WFM) and Costco (COST), among others.
As silly as it sounds, if Amazon was going to get into this business (which it did), Google had to as well. Why? Well, largely because of this stat right here:
“A recently conducted BloomReach survey of 2,000 online shoppers found that a whopping 44% of them began their online shopping quest on Amazon. That compares to just 34% that use search engines to start their shopping research.
This has Google understandably peeved, as it’s missing out in billions in potential online ad revenue from shoppers who would otherwise use its search engine to find and buy products. GOOG has fought back against AMZN there by doubling down on Google Shopping, an online shopping platform seamlessly built into its search engine.
The folks in Mountain View certainly aren’t about to cede the burgeoning grocery delivery market to Amazon as well. Thinking longer-term, delivering fresh groceries could also serve as proving grounds for GOOG as it continues to perfect its fleet of self-driving cars.
With Tesla (TSLA), Uber and potentially even Apple (AAPL) all possible (or 100% confirmed in the case of Tesla and Uber) entrants into the self-driving car market, this cute little grocery delivery business could actually be where Google shows the world that driverless cars are practical and safe.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
