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AmazonFresh: Ushering Disruption on the Horizon of the US Grocery Retail Business March 2014 BLOG POST

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What is AmazonFresh? AmazonFresh, an initiative by Amazon Inc (and a subsidiary thereof), offers same-day and early morning delivery of fresh grocery and local products Items ordered through AmazonFresh are made available for home delivery on the same day or the next day, depending on the time of the order, and the availability of trucks needed to make the delivery Minimum order value for it being delivered free is $35 AmazonFresh customers need to subscribe to Amazon Prime Fresh. At the moment, Amazon offers a free 30-day trial of Amazon Prime Fresh; and after the completion of this trial, customers will be charged $299 for the following year and annually after that, unless the subscription is cancelled by the customer As of March 2014, AmazonFresh services the greater Seattle, Los Angeles and San Francisco areas

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What product lines are currently supported? Over 500,000 items supported including a subset of items from the main storefront (such as wine, pumpkin pie, and pre-cooked turkeys etc.) Grocery items from apples to shampoo, milk to books and from lettuce to ground beef Bakery items, ethnic foods as well as gourmet meals from local shops and restaurants are also supported

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What kind of delivery mechanism does AmazonFresh have? AmazonFresh has two types of Delivery mechanisms: –

Doorstep Delivery  Customers get to choose a 3-hour time window that works best for their schedule, without a constraint of needing to be at home  AmazonFresh employees would leave customers’ items at their doorsteps in temperature-controlled tote bags  In order to be eligible for Doorstep Delivery, only condition that AmazonFresh has is that the AmazonFresh driver has an unrestricted access to the customer’s doorstep without having to call him / her

Attended Delivery  Customers need to select a 1-hour appointment when they will be at home in order to receive the delivery  Some of the benefits of Attended Delivery are:  Shorter delivery windows and ability to include alcohol purchases with the delivery  Delivery to buildings with secure entry or limited access possible

AmazonFresh: Ushering Disruption on the Horizon of the US Grocery Retail Business

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What is the likely impact on other grocers, mainly brick-and-mortar grocers?

AmazonFresh: Ushering Disruption on the Horizon of the US Grocery Retail Business

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5. What kind of competition is AmazonFresh likely to face? AmazonFresh is bound to face tough competition from existing online grocery sellers like Peapod and FreshDirect - currently the market leaders - and from new online grocery services from Walmart. •

Peapod – owned by international food giant Royal Ahold NV, and claims on its website to be the largest Internet grocer in the United States, delivering more than 23 million orders across 24 East Coast and Midwest markets

FreshDirect – caters to customers at homes and offices in some parts of New York, New Jersey, Connecticut, Pennsylvania, and Delaware

Walmart – began testing online food delivery in San Jose and Denver, shipping food directly from local superstores to customers using special ‘Wal-Mart To Go’ trucks. Walmart has a unique advantage in this space: it has over 4,000 stores located within five miles of almost two-thirds of the US population!

6. In conclusion Amazon plans to expand AmazonFresh services to an additional 20 urban areas in 2014. Much needs to seen with respect to the profits Amazon makes, as grocery business is a loss leader or a thin margin winner at the moment. Market knows that Peapod struggled to make profits for a long period; and the thin margin that it currently makes; thanks to the supply chain efficiencies, high population density in places like Chicago and its relations with brick and mortar stores on the east coast. Amazon needs to learn from its incumbent competition, whether brick and mortar or online. The one advantage that Amazon has is that it can look forward to making profits from sales of other products ordered online at the same time and bear losses on AmazonFresh at the moment. On the other hand, losses may soon be a history given that it has been testing market slowly and secretly for over 5 years, especially in Seattle. In addition, Amazon could also consider up-sell and adjacency sell where it makes recurring visits to the customers’ houses to pick up the storage tote-bags that it leaves from its previous deliveries. In conclusion, thus, it will be safe to say that while not perceived as an eminent threat to the brick and mortar business, AmazonFresh will definitely usher a disruptive trend in the grocery retail business.

AmazonFresh: Ushering Disruption on the Horizon of the US Grocery Retail Business

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