Amazon is diving deeper into the instant-gratification business, but with a twist: Now you come to them. The company this morning unveiled AmazonFresh Pickup: order groceries online, then drive to an Amazon-run store, where a worker brings them all bagged up to your car.
The first two grocery pickup spots are in Seattle and available only to Amazon employees. When the company finally opens the service to the public, grocery pickup will become yet another Amazon Prime perk. But groceries are more than just another add-on for Amazon. Analysts predict online shopping could amount to 20 percent of all grocery spending within the next decade. This isn't Amazon's first attempt at groceries, or a physical store. But in combining the two, the company has hit on a competitive strategy that just might work.
As far back as August 2007, Amazon was testing its first iteration of Fresh, delivering groceries from its vast network of fulfillment centers. But the rollout of that service proved complicated. Amazon started out charging Prime customers $299 per year for the service before settling on $14.99 per month. The biggest challenge for Amazon: Groceries aren't like any other consumer good.
"It’s notoriously difficult to stay profitable by delivering groceries,” says Jason Goldberg, vice president of commerce at the digital marketing company Razorfish. "Perishables must arrive when a consumer is home to receive them and put them in a refrigerator."
And Amazon can't really work like Amazon when you have to be home. What's more, groceries require a greater human touch on Amazon's end, from the complicated packaging of delicate perishables to delivery drivers needing to take the shortest route possible so they don't spoil. Goldberg says these headaches make Amazon's new come-to-us approach the better way to handle groceries online.
Not that Amazon is the first to figure this out. Both Walmart and Kroger offer similar services that are doing rather well. And while Amazon has invested intensely in building distribution centers closer to major metro areas, Walmart still has many more stores closer to many more Americans. At the same time, Amazon's promise of orders ready in 15 minutes appears to far outstrip its' rivals 2-to-4-hour order prep times---the difference between truly being able to order your groceries on the fly, and doing it during breakfast time then planning an afternoon pick-up trip.
Basically, Amazon doesn’t have to win the entire grocery game to do well. "Everyone likes to talk about all these things as if it’s a 'winner take all' market," says Goldberg. “But the history of retail doesn’t bear that out." For one thing, Amazon already knows where it has a high concentration of Prime members. It can focus its efforts on winning these markets without needing to over-commit resources to any kind of broader national rollout.
As with so much else it does, Amazon will also likely focus on user experience over profit to win over new customers. "That captures Amazon’s culture really well," says ChannelAdvisor executive chairman Scot Wingo, an analyst who tracks Amazon closely. Amazon will likely try to be competitive on price, but it probably won't go all in on a race to the bottom. Instead, it will no doubt play to its strengths—in this case, logistics, tweaking prices using algorithms, and ease of use—to win customers over through sheer convenience.
In other words, Amazon may not save you money compared to the other big chains. But if pickup works like it should, it will save you time. And hooking you on that ease still helps Amazon's bottom line, since getting you to spend the time and money driving to those pickup points costs Amazon way less than bringing them to you. If pickup proves successful, Amazon will have pulled off a neat trick: the company that changed retail forever by bringing everything to your door will have convinced you to do the driving.
