Ama­zon courts food shop­pers

Daily Local News (West Chester, PA) - - BUSINESS - By Mae An­der­son AP Tech­nol­ogy Writer

NEW YORK >> Ama­zon wants you to order your turkey, stuff­ing and cran­berry sauce on­line this Thanks­giv­ing — its lat­est ef­fort to make its Prime sub­scrip­tion ser­vice a cen­tral part of food shop­ping, much the way it’s done for other con­sumer goods.

Right be­fore the cook­ing-heavy months of Novem­ber and De­cem­ber, Ama­zon rolled out a monthly pay­ment op­tion for its gro­cery de­liv­ery ser­vice, Ama­zonFresh. On Mon­day it ex­panded to sev­eral new cities in­clud­ing Chicago and Dal­las.

Ama­zon — which has been work­ing on ex­pand­ing gro­cery de­liv­ery since 2007 — is tak­ing aim at the $650 bil­lion gro­cery in­dus­try. It’s a highly com­pet­i­tive arena filled with ri­vals like Wal­mart and In­stacart try­ing to lure cus­tomers away from tra­di­tional gro­cery stores. Some re­ports suggest that Ama­zon plans to open gro­cery stores of its own, but the com­pany has de­clined to com­ment.

“Gro­cery is a mas­sive mar­ket op­por­tu­nity for them,” said R.W. Baird an­a­lyst Colin Se­bas­tian. It’s a no­to­ri­ously tough busi­ness with low mar­gins, since it’s ex­pen­sive to store and trans­port pro­duce. But Ama­zon has spent years iron­ing out the kinks with its de­liv­ery ser­vice, he said.

Ama­zon near-decade of ex­per­i­men­ta­tion “gives them the scale and ex­per­tise that comes with time, al­low­ing them not only to fine tune the ser­vice, but also per­haps ac­cel­er­ate the roll­out into other ar­eas,” Se­bas­tian said.

Hum­ble be­gin­nings

Ama­zon started its gro­cery de­liv­ery busi­ness around its home town of Seat­tle, and has since ex­panded to about 18 cities and re­gions, in­clud­ing Lon­don and New York. It has changed its pric­ing struc­ture, too, hav­ing started with an an­nual $299 fee that in­cluded Prime mem­ber­ship. Its monthly pric­ing pro­gram — $15 a month for mem­bers of its $99-a-year Prime loy­alty pro­gram — started ear­lier this month.

Ama­zon doesn’t dis­close whether or not gro­cery de­liv­ery is prof­itable, but an­a­lysts say it’s prob­a­bly not. Rather, it’s a way to drive rev­enue growth and hook users into the idea that they can buy ev­ery prod­uct from Ama­zon.

“They have a user base with Prime that is in­clined to use Ama­zon, and they’re clearly lever­ag­ing that loyal mem­ber­ship base,” Se­bas­tian said. Ama­zon’s monthly pric­ing model could in­di­cate the busi­ness has be­come less of a money loser.

“I think they’ve got­ten to the point they can be more flex­i­ble,” Se­bas­tian said. “It’s an ex­pen­sive busi­ness to run and that flexibility in pric­ing shows they’ve gained some ef­fi­cien­cies.”

Ever-ex­pand­ing Prime

Ama­zon has been con­tin­u­ously adding ser­vices to its Prime loy­alty pro­gram, which of­fers free two-day ship­ping on many items and boasts an es­ti­mated 65 mil­lion mem­bers (Ama­zon does not dis­close the fig­ure). It also in­cludes stream­ing mu­sic and video, photo stor­age and other perks. Adding ser­vices like gro­cery de­liv­ery and orig­i­nal video pro­gram­ming costs money, but Ama­zon founder and CEO Jeff Be­zos says it’s worth it be­cause Prime mem­bers spend more at Ama­zon.

“If you be­come a Prime mem­ber you buy more from us,” he said at a lun­cheon in New York on Thurs­day. And peo­ple that watch Prime In­stant Video, for ex­am­ple, are more likely to con­vert from free tri­als to paid Prime mem­ber­ship, and are more likely to re­new their Prime mem­ber­ship in sub­se­quent years, he said.

“That’s what closes the loop from the busi­ness an­gle,” he said.

Af­ter post­ing lit­tle-to-no profit for years each quar­ter as it in­vested in its busi­ness, Ama­zon has be­gun to bal­ance spend­ing with rev­enue more pru­dently and has re­ported a profit in each of the past five quar­ters. On Thurs­day, Ama­zon said net in­come tripled to $252 mil­lion, or 52 cents per share, from $79 mil­lion, or 17 cents per share, in the prior-year quar­ter. That missed an­a­lyst ex­pec­ta­tions of 85 cents per share, ac­cord­ing to Zacks In­vest­ment Re­search.

Rev­enue jumped 29 per­cent to $32.71 bil­lion in the pe­riod, which topped Street fore­casts. Twelve an­a­lysts sur­veyed by Zacks ex­pected $32.57 bil­lion.

For the cur­rent quar­ter end­ing in De­cem­ber, Ama­zon said it ex­pects rev­enue in the range of $42 bil­lion to $45.5 bil­lion. An­a­lysts sur­veyed by Zacks had ex­pected rev­enue of $44.7 bil­lion.

The third quar­ter is a sea­son­ally light one com­pared to the bustling hol­i­day quar­ter com­ing up.

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.