Amazon to build convenience stores for grocery business

Amazon is the king of online commerce, but in an effort to become a real player in the grocery business, the company is reportedly preparing to build convenience stores and curbside pickup locations.

According to The Wall Street Journal, “The Seattle company aims to build small brick-and-mortar stores that would sell produce, milk, meats and other perishable items that customers can take home, these people say. Primarily using their mobile phones or, possibly, touch screens around the store, customers could also order peanut butter, cereal and other goods with longer shelf lives for same-day delivery.”

Curbside pickup locations would allow customers in a rush to place orders online and have them brought to their vehicles.

While Amazon hasn’t confirmed the reports that it’s moving offline in a big brick-and-mortar grocery push, as The Wall Street Journal points out, grocery sales make up 20% of all consumer spending in the U.S. but only 2% of grocery sales take place online. Those figures, plus the growing number of consumers who are planning to grocery delivery services, makes grocery market an attractive target for Amazon.

Currently, Amazon has just over 1% market share in the market, where it lags top three players Wal-Mart, Kroger and Albertsons/Safeway, which have 17.3%, 8.9% and 5.6% market shares, respectively.

Amazon’s Fresh service, which offers fresh produce and grocery service, was originally priced at $299/year, but Amazon is now making it available to Prime members for $15/month.

amazon fresh

Hedging its bets?

To some, Amazon’s possible foray into the brick-and-mortar grocery business seems curious. Slate’s Will Oremus, for instance, suggested that this is what happens “when a tech company gets so successful that it forgets what made it successful in the first place.”

But Amazon’s plans could also be related to the difficulties it will have competing in the grocery market without physical locations. The company has been investing heavily in building out a logistics supply chain that some believe could one day threaten UPS and FedEx and dent the hopes of companies like Postmates and Uber. Amazon’s investments include a leased Boeing 767 that has been branded Prime Air.

Grocery delivery is more complicated, however. As former FedEx exec and consultant Ivan Hofmann told The Wall Street Journal, “There’s just so much variability in the grocery delivery model, that it’s always going to be a more costly delivery, and it doesn’t lend itself as easily to economies of scale as packages do.”

With Wal-Mart planning to offer grocery pickup at over 1,000 of its stores by the end of 2017, for the first time ever, Amazon might have no choice but to adopt the brick-and-mortar model it has so significantly disrupted.

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