Amazon Fresh expands to San Francisco market

12/18/2013 10:32:00 AM
Tom Karst

Expansion of Amazon Fresh into the San Francisco region in December is opening more homes to online ordering and home delivery of fresh produce and perhaps cracking the door wider for a grocery revolution.

The company’s website said the service, offering fresh grocery and local products, is available to select San Francisco zip codes as a 30-day trail of Prime Fresh, which is a new level of Amazon Prime that include the benefits of Prime, in addition to access to AmazonFresh. After a free 30-day trial, Prime Fresh customers will be charged $299 for a year’s subscription, according to the website. Amazon Fresh also delivered fresh groceries in Los Angeles and Seattle.

The company recently opened a 1 million-square-foot fulfilment/distribution center in Tracy, Calif., only 55 miles from San Francisco. The company also has recently opened California facilities in San Bernardino and Patterson.

Amazon Prime Fresh offers free delivery on orders over $35, according to the company’s website. If an order is placed by 10 a.m., Amazon said the customer will have it by dinner, An order placed by 10 p.m. will be delivered by breakfast, according to the website.

A few of the items offered by Amazon Fresh to San Francisco area customers were a lemon for 50 cents, a five-count bunch of bananas for $1.49, a medium sized Hass avocado for $1.25, a gala apple for 99 cents and a 16-ounce clamshell of Earthbound Farm organic spring mix for $5.99.

Coverage of the entry of Amazon Fresh into the San Francisco market by The Mercury News said that Amazon Fresh faces competition from several home-shopping competitors including Instacart, Wal-Mart and Google.

In a 60 Minutes interview that aired Dec. 1, Amazon’s chief executive officer Jeff Bezos said that the company waited five years to expand Amazon Fresh from the home Seattle market to Los Angeles earlier this year (and now San Francisco) because it needed the grocery delivery model make financial sense.

“If we can make this model work, it would be great because it extends the range of products that we can sell,” Bezos told 60 Minutes.

The Amazon Fresh initiative will be worth watching, retail analysts said .

“They know how to get product from point A to point B,” said Dick Spezzano, owner of Spezzano Consulting Service in Monrovia, Calif. Younger consumers who are wed to their smart phones may be natural targets for the business, he said. “(Younger consumers) want it when they want it and they are willing to pay for it,” Spezzano said. “Now is the time for it to work,”

The Amazon Fresh rollout is limited to select zip codes in San Francisco but is a beachhead for future growth, said Bill Bishop, chief architect of Brick Meets Click and chairman of Barrington, Ill.-based Willard Bishop Consulting.

Bishop said it appears Amazon Fresh intends to start its offer with high end consumers and working back toward middle income consumers. “They are going to work out the details of the experience starting at the Lexus and building smaller cars, using an analogy,” he said.

The company’s extensive network of distribution facilities will allow food to be added to trucks already being sent out. “By combining food, which has a high frequency of purchase, with some of the lower frequency purchases like books, that allows them to build out a better network,” Bishop said.

If successful, Spezzano predicted that Amazon Fresh won’t easily be acquired or purchased by someone else. “These guys will be the 800-pound gorilla in every room.”

San Francisco won’t be the last market Amazon Fresh expands, Bishop said, In fact, Bishop said there are reports that an Amazon Fresh truck has been spotted in Chicago. In addition, Amazon Fresh announced in October it will open a 1 million square foot fulfillment/distribution center in Kenosha, Wis.

The existing presence of Peapod home delivery in the Chicago market will makes the city attractive to home delivery business models because many customers are familiar with the model. “We have a base of shoppers in Chicago familiar with online buying makes more receptive to the market offer,” he said. Bishop said some retailers aren’t taking seriously the competitive threat of online buying/home delivery of groceries. “I’m not seeing any great rush to get ready,” he said.

Bishop said that online buying and home delivery may appeal to a mix of customers, including time-starved working parents, millienials and some older shoppers.

The Amazon Fresh model of charging a yearly fee may encourage more use as opposed to tacking on a delivery charge every time, Bishop said. “At the end of the day, it is use that is driving their business,” he said.

Conventional retailers need to know their customers and anticipate their attraction to online buying, Bishop said. The growth of online shopping and home delivery may vary significantly according to market activity, and Bishop said Brick Meets Click is helping retailers in various markets identify the threat of online shopping for their specific region.

In general, statistics from Brick Meets Click show that an average of about 11% of shoppers have purchased food online in the past month. Online grocery shopping accounts for about 3% of purchases across all banners now but that share could expand to anywhere from between 7% to 17% by 2023, according to projections from Brick Meets Click.



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