4 ms·

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?

kennymeyers 13y ago
Amazon's margins are also thin. They generate a lot of their revenue by volume.
jonknee 13y ago
Amazon loves razor thin margins. 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.
- vijayr 13y ago
  I wouldn't be surprised if in a few years from now, Amazon starts directly competing with FedEx (not just delivering the products they themselves sell). If there is one company that thrives on volume and razor thin margins, it is Amazon. 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) ...
  - michaelxia 13y ago
    thats an interesting point. I'm not sure its all part of some large plan slowly in motion, more likely just monetizing parts of their infrastructure they already had. what if my kids ask me what "stores" are.
potatolicious 13y ago
This has positive synergies with Amazon's long-term plans: near-instant availability. 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.
sfall 13y ago
think of the over head that gets shifted or cut. 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
stephengillie 13y ago
Grocery margins are razor-thin for 2 reasons: 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.
xaritas 13y ago
My take, from being a cube dweller at Amazon, circa 2003: Jeff Bezos' mantra (well, one of them): 90% of all commerce is local. I remember we even had a somewhat whimsical project to scan all local restaurant delivery menus... not that it panned out, but local is an intense area of interest. 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."
BasilAwad 13y ago
inventory turnover also has to be taken into account
ippisl 13y ago
Amazon bought kiva robotics last year. That's a company that builds robots for e-commerce warehouses. They increase worker productivity by 4x, reduce error to zero and decrease space needed. 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.

kennymeyers 13y ago

Amazon's margins are also thin. They generate a lot of their revenue by volume.

jonknee 13y ago

Amazon loves razor thin margins. 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.

vijayr 13y ago
I wouldn't be surprised if in a few years from now, Amazon starts directly competing with FedEx (not just delivering the products they themselves sell). If there is one company that thrives on volume and razor thin margins, it is Amazon. 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) ...
- michaelxia 13y ago
  thats an interesting point. I'm not sure its all part of some large plan slowly in motion, more likely just monetizing parts of their infrastructure they already had. what if my kids ask me what "stores" are.

potatolicious 13y ago

This has positive synergies with Amazon's long-term plans: near-instant availability. 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.

sfall 13y ago

think of the over head that gets shifted or cut. 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

stephengillie 13y ago

Grocery margins are razor-thin for 2 reasons: 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.

xaritas 13y ago

My take, from being a cube dweller at Amazon, circa 2003: Jeff Bezos' mantra (well, one of them): 90% of all commerce is local. I remember we even had a somewhat whimsical project to scan all local restaurant delivery menus... not that it panned out, but local is an intense area of interest. 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."

BasilAwad 13y ago

inventory turnover also has to be taken into account

ippisl 13y ago

Amazon bought kiva robotics last year. That's a company that builds robots for e-commerce warehouses. They increase worker productivity by 4x, reduce error to zero and decrease space needed. 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.