I don't get why Amazon would want to do this -- it's always been my impression that grocery stores' margins are razor-thin. Am I wrong about this?
One of Amazon's largest costs right now is shipping, and their volume is approaching the scale where running their own last-mile transportation, in some cities, starts to make a lot of sense.
These are also, coincidentally, the cities that are dense enough to support a delivery grocery business.
So basically:
- Freedom from the tyranny of UPS, FedEx, and shitty last-mile delivery companies like OnTrac.
- Lower cost and higher efficiency of a shipping infrastructure that is tailor-made for their product variety and delivery timing.
- A convenient way to build said infrastructure in a way that does not involve Amazon going all-in with their core business, and instead allows them to slowly attach the main Amazon.com experience as the delivery infrastructure grows.
- Domination of yet another vertical.
I'm excited. I used Amazon Fresh in Seattle when I lived there, and nowadays in NYC even the vaunted FreshDirect simply does not compare. New Yorkers think they've seen the end-all-be-all of grocery deliveries, but they ain't seen squat yet.
1. Most of the money in grocery is in perishable foods. There's also a huge amount of shrink from product spoiling or being damaged -- A truck driver having a bad night can easily lose 2-3 pallets (288 gallons each) of milk. If the cooler or freezer is full, pallets of product sometimes get left in the backroom aisle.
2. Unions forcing exceptional medical plans. When I worked for Safeway, and was part of UFCW Local 367, I had the best medical care I've ever had -- PPC network with low copays and it included ~$600 of dental and glasses lenses/frames every year/two. And we had no deductible as long as we worked more than 20 hours per week.
Amazon won't have any stores, so they'll be avoiding both of these costs.
It's also a good way to start cutting out their biggest expense--shipping. If Amazon is already going to be in your neighborhood every day dropping off food, I don't see why they can't also drop off other Amazon products.
Just look at the range of markets they are entering - it is scary. cloud storage, selling almost every physical product we can imagine, online video, tablets (and phones soon) ...
what if my kids ask me what "stores" are.
Another mantra: platforms win (unstated: in the long run).
My synthesis: The purpose is to become the platform for all commerce, not to sell groceries. I wouldn't be surprised if Mr. Bezos' long term goal is something breathtakingly audacious like "directly facilitate 1% of all global commerce by 2073."
Instead of stocking the shelves and maintaining them now you place a pallet in the pick line and have an order picked once. Warehouse space is typically cheaper. A warehouse doesn't need to be built out to look nice, just fictional.
Your advertising, shifts and is honed so less is hopefully spent. You also get to tap amazon's logistic and ordering knowledge so less waste and spoilage.
Your order pickers can grab all the items before they go. Hell they could build in specials for when a supply has been sitting but still good.
You don't have to have people rounding up carts, watching automated checkouts, etc.
The margins aren't as great as other goods but if you cut the costs and match local prices you can still make more. I also would guess that as time goes on their could be a grocery prime account where you get a once weekly delivery
Using such robots for groceries might increase amazon's margins in retail to a reasonable level(for amazon), and will definetly be a competitive advantage over others.