ANAHEIM, Calif. — Amazon Fresh hasn’t set the world on fire since its launch in 2007. Its home grocery delivery, run on a fleet of 15 to 20 trucks, is popular in the Seattle area. But it hasn’t spread to new markets.
That could change soon, according to Tom Furphy, chief executive officer of Consumer Equity Partners. He also expects Wal-Mart eventually will offer shoppers pickup and delivery.
Furphy is a former vice president of consumables at Amazon Fresh, a job he left three years ago. He and Kevin Coupe, founder of MorningNewsBeat.com, explored the implications for brick-and-mortar retailers in a Fresh Summit 2012 workshop on “How to Survive the e-Revolution.”
“We hear in the marketplace that they are laying out expansion plans to trading partners,” Furphy said of Amazon Fresh. “Particularly the big national brands, because they’re interested. ‘This is a great little experiment (the brands say), but I need to see scale.’ So Amazon will say, ‘Here’s the next couple of cities on the West Coast.’”
A move by Amazon Fresh into new markets, however few, would signal its confidence in solving the problem of scale.
“They feel like they’ve either hit the metrics or have a good path to it,” Furphy said.
Minimum or average order size and optimal truck use, pricing and selection are the elements in a tricky profitability equation for delivery. Some companies that could do it, might not want to.
“There may be an opportunity (for Sysco) to build a direct consumer business,” Furphy told an attendee in response to a question about that possibility. “It’s probably the same margin for a lot more work. If I were Sysco, I’m not sure why I would do it. But I think you’re going to see this local delivery battleground heat up.”
“Wal-Mart has come out and said they will build a fulfillment center network like Amazon’s,” Furphy said. “They are going to have some hybrid of direct consumer delivery along with click-and-collect store pickup. They’re doing some tests now and they will have local delivery as well.”
Consumers are beginning to demand that kind of convenience, he said, which makes adding it a competitive imperative for others.
Another side of the e-revolution is virtual stores that allow passengers to order groceries from screens or smartphone apps and code scanners. Tesco and Peapod have had some success with these in subway and rail stations, Coupe said: Tesco in Seoul, South Korea, and Peapod in Chicago, Philadelphia, and Connecticut’s Fairfield County.
Wal-Mart has operated virtual stores — albeit not for food items — in vacant mall spaces during Christmas season, Coupe said. “Retailers can do that too ... even with produce,” he said.
Still, Coupe said, e-commerce is not the only way retailers can benefit from technology. Another is displaying produce information on screens or tablets in stores, since digital media, as he sees it, could outperform produce department personnel there.
Workshop participants said digital’s power is far from fully realized, and its growth will hasten change.
By digital or whatever means, Coupe said, brick-and-mortar retailers must find ways to make shopping more appealing than looking at a cell phone.
For growers, digital offers a chance to bypass the traditional retail segment and reach consumers directly, Furphy said, a profitable strategy for locally grown. But growers can’t expect companies like Amazon to ease up on the cost pressures they feel now from traditional retailers.