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Comment by bphogan | Hacker News Reader

I can't figure out why they're doing this themselves and not partnering up with the smaller local and regional grocery stores that are getting clobbered by the Wal-Mart supercenters. Like 1800 Flowers does. I order, the local place gets my order, the convenience fee goes to the middlemen, and I can be lazy.

I know there were failed startups that did this in the past, but you'd think Amazon could figure out ways to make it work. It has to be better than rolling their own.

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I work for a grocery delivery company in the UK who deliver from a central warehouse. Some reasons include:

1. If you pick in a store, the picker might find things that are out of stock because walk-in customers have brought them. This means items missing or substituted, which customers don't like.

2. Most people have a way they do grocery shopping already (like driving to wal-mart) and you have to compete with that. People won't pay a big convenience fee. That means you need economies of scale, you need a low cost-per-pick and you need to drive down waste.

(People don't seem to factor the cost of their time or petrol into the cost of grocery shopping. I've seen people who earn $100 an hour but who don't want to pay $10 to save themselves an hour of grocery shopping.)

3. You need a big range. Many customers do one main weekly shop and a smaller 'top up shop'. If your range doesn't have everything they want for their main shop, they'll be driving to wal-mart for those scented candles anyway so wal-mart will get their entire main shop.

I have all these problems with Safeway Delivery and Google Shopping Express (which doesn't do groceries unfortunately).

I still swear by those services. They save hours of my or my wife's time every week. We value our time highly.

This is a highly profitable (and growing) niche but one that can support multiple vendors and local stores.

In addition to the other two responses, you have to remember that Amazon is not in the last leg of the delivery business. By last leg, I mean their logistics system covers large parts of the supply chain all the way up to the part of the chain that actually brings the product to the consumer. However, for the last leg of the supply chain, they leave it to UPS/Post Office etc.

Because of this, Amazon has few resources that make sense for partnering up w/ smaller and local regional grocery stores. These stores have independent supply chains are warehouses. This is where Amazon has expertise and advantages. If Amazon teamed up with them, then they would have to rely on the store's existing supply chain logistics and infrastructure, rather than use any of Amazon's advantages.

This means if Amazon were to actually add anything besides a website and the brand name, they would have to either 1) delve into the actual home delivery business, something they do not have any expertise in as they currently outsource it to other postal companies, or 2) they would have to undertake some sort of join venture to restructure the grocery stores supply chain (thus defeating the point of trying to take advantage of the grocery store's incumbent advantages).

Thus, unless Amazon makes a big effort to expand its business by building a warehouse to doorsteps delivery system, or undertakes rebuilding the grocer's supply chain, the only thing Amazon gets out of partnering with a grocery store is running the risk that the grocer may tarnish Amazon's name with shoddy service / products.

If anything, I think it would be smarter for Amazon to just buy a smaller local / regional grocery chain in a heterogeneous market. The ideal would be to buy a lower end grocer like a piggly wiggly in a market that also supports higher end grocers. You continue operating the Piggly Wiggle/low end grocer under the same brand name and don't even publicize the fact that Amazon owns and operates it. You then slowly switch over the logistics & infrastructure / supply chain supporting the low end Piggly Wiggly to work w/ Amazon's existing supply chain / warehouses & anything new that Amazon has to build to develop its grocery service. You then launch the Amazon Delivery service which has it's own branding but relies on the same back end/logistics that Piggly Wiggly is running on. This means that Amazon's logistics for the Piggly Wiggly brick and mortar stores are subsidizing the costs of the infrastructure for the Amazon Online Grocer while Amazon works on building up the online customer base needed to justify the cost of running an online grocer. Additionally, I assume there is a small overlap between shoppers at lower end grocer's like Piggly Wiggly (Sorry I keep picking on Piggly Wiggly), and consumers who want online grocer services. This means that Amazon won't be cannibalizing much of the brick and mortar business by pressing the online store because they will probably be different customers. Amazon could further help target different customers by opening up the Online store in zip codes that have few to no Piggly Wiggly shoppers. This means that Amazon is basically opening up a virtual grocery store in an area that would normally reject the Piggly Wiggly brand but still uses the same warehouses/supply chain to deliver the goods to the consumer.

That would be a nightmare for them. You can't control the service or quality that is performed under your brand name. And how would you keep track of the inventory available at each grocer? They are not identical. And, grocery stores aren't going to pick-and-deliver small orders to individuals with no added incentive. They would need a hefty delivery fee to make it worth their while. I can't think of any reason to go with this approach.

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