Amazon to Launch Online Grocery Store

Aryabhata writes "It might sound like a bad flashback to the dot-com days, but news is that Amazon is planning to test the waters with an old idea; the online grocery store!. To its defense Amazon is only attempting this with nonperishables like peanut butter, potato chips, and canned soup implying that there's no refrigeration required--ordinary warehouse shelves will do fine."

Comments

Peapod

[Anonymous Coward]

I've never heard of this WebVan company, but the online grocery store that I do know - Peapod - is still around and, going by how often I've seen their vans parked in some residential neighbourhoods around Chicago, quite successful. And they do deliver perishables.

In New York City, we already have that.

[Nybarius]

It's called Fresh Direct.

mostly items in bulk

[jwachter]

FYI, if you browse through the store, you'll notice that almost all the items they sell are economy sized or are packaged in multi-packs. If you just want one bottle of detergent, you're out of luck. If you want to save on 6 bottles at a time, this is the place for you.

Jonathan

Re:mostly items in bulk

[aqua]

It's not just supported. The grocery thing is all about Prime. It's a tool to encourage people to buy Prime memberships, and to give members a reason to order and renew.

To understand this sort of thing you have to think about three issues: supply chains, inventory management and fulfillment. They're the three biggest logistical issues in retail. Actually building stores or finding customers or selling them stuff... a bit further down the list. For a big retail company, huge amounts of money are gained or lost based on those three processes, and small changes there have a far bigger effect than anything that goes on in a store. The supply chain is about getting ahold of the stuff you're going to sell. But getting it in just the right amounts, in the right places, at the right times, with the right number of nines in the probability it'll all happen correctly and the right number of zeroes in the dollar penalty if it doesn't. A "bubble" in the supply chain, where a shipment was late, equals lots of lost revenue -- not just in the store, but in the warehousing and all the disruptive ripple effects. It doesn't take much to disrupt a supply line -- a breakdown in a loading dock, a storm that delays a cargo carrier out of China from making port in Oakland or Los Angeles. You can see why big retailers like Target, Walmart or Amazon are so union-hostile; their systems are extremely vulnerable, and the economic impact of a strike has magnified.

Then there's inventory. If you're in the business of selling stuff, inventory is bad. You have to pay for the shelf it's sitting on, you have to keep it from getting wet or dirty (if it's perishable, you have to pay to keep it cold). And it's depreciating every minute it sits on your shelf, representing a paper loss you have to explain to the shareholders. Plus, it's taxable. Remember how smaller shops used to be out of everything around the end of the fiscal year? If you asked the shop keeper, he'd look a little frazzled and mumble "inventory," 'cause he was trying to get rid of as much as possible of it before the IRS made him pay taxes on it. Big retailers don't do that anymore, because they own so little inventory it doesn't hurt them -- and often they don't own the inventory that's on their warehouse or store shelves at all. The shift in power from the manufacturers to the retailers over the last decade or so displaced the tax burden of ownership back to the manufacturers, who in turn shift it backwards to their own supplies or subsidiaries, often in Asian countries that don't tax physical assets. The ideal arrangement from a retailer's point of view would be for the warehouses to have no shelves at all, but simply to be this giant tube through which products were hurled, changing quantities or packaging a little bit in midair, and never touching the floor once before landing in a different truck on the far side of the tube.

And then, fulfillment. For Amazon, that's putting the items in a box and tossing it into the UPS truck. For a big-box retailer it's putting a pallet of them on a truck and driving it to the store. It's a difference of scale made a little earlier on, but fundamentally it's no different. Products need to be physically located near the point of sale (that's the store the customer walks into or the room their web browser was in, whichever) to get it to them cheaply. That's "near" in terms of cost, which is sort of like physical distance but not precisely. The right amounts of inventory (or better, supply chain infeeds) need to be pre-positioned on transit arteries that can reach the stores with the demand or the shipping carriers' local shipping centers as quickly and cheaply as possible. Good highways, good weather, complaint carriers, cheap labor, and union leaders run out of town by a compliant local government eager for the thousands of low-wage jobs you're promising to bring in. Costs to get the product into customer's hands need to be minimized, whether that's with an effective supply system to brick-and-mortar

Why a flashback?

[radish]

I've been buying my groceries online for years, and I intend to continue doing so. The food is better quality, there's more choice than my local supermarket and it's way more convenient. In my area right now there are 2 competing online services (that I'm aware of, might be more) so there's even a choice. I'd assumed this kind of service was available everywhere - I guess not.

They already sell some food

[Orange Crush]

Amazon already has a gourmet food store. This seems like a logical extension to me.

plenty in the UK

[mr.e]

In the UK tesco (www.tesco.com) have been doing online groceries for years - as have Ocado.

Re:plenty in the UK

[10bellies]

Iceland, Asda, Sainsburys...the list goes on. This is nothing new in the U.K. and I'm surprised it's not being done in the States.

Most UK supermarkets have done this for years

[Tim C]

The main difference being, of course, that they're already in the grocery business, and so have no problems with perishables. In fact, I ordered my groceries online from Tesco earlier; it's so much quicker and more convenient than actually going there. Of course, you have no control over the quality of the fresh items that are picked (although I generally have no complaints). Also, if they don't have something you ordered they'll substitute something similar, which isn't necessarily to your taste. You're entitled (expected, really) to refuse anything you don't want though if that does happen.

There's a charge for the service, of course (about 5 pounds), but it saves so much time and hassle it's generally worth it (not to mention that it massively cuts down on the temptation to impulse buy).

And the others...

[williamhb]

Not to mention tesco.com and ocado.com in the UK (Very successful national online grocery stores run by ... two of the UK's biggest grocery store chains), and the many online organic food delivery box companies running in the UK. Honestly, guys, if "online groceries" gives you flashbacks to 2000 then you are about six years behind the times...