One of my fondest memories as a child was being able to spend the summer with my grandmother in France. At the time she lived in a small village about an hour from Paris – Morsains. The village had no commercial establishments so every morning a number of food trucks (really vans) would come by and offer the residents the ability to purchase the usual staples: fresh baguette, cheese, meats, milk to name a few. As a kid it was always exciting to hear that horn (they would honk when they got to the village), because sometimes you were able to purchase candy or some pastries as well. This was back in the 1980s. Interesting that the ability to deliver in this manner lost momentum. Of course we saw this type of delivery start up again in the 1990s when the dot com boom struck. Everyone from Webvan to Kozmo looked to bring just in time food delivery to your front door back to the mainstream. During those hey days I was working at Forrester Research and remember seeing these companies come to brief us and ask our opinion but also, especially when it came to Kozmo, I would see them deliver to myself and fellow co workers on a daily basis. Unfortunately, these companies were not able to solve the nut that is grocery, last mile delivery. Webvan in particular ran into major problems – how to delivery if no one was home, what to do with perishables, what about frozen goods? I remember one discussion we had at Forrester that to be successful Webvan would have to find a way of putting refrigerators in customers garages our somewhere accessible if no one was home. But the investment that would require would destroy their margins…oh wait those already got destroyed. Unfortunately, Webvan and the likes burned through a lot of cash and could never capture profitability. Traditional grocery chains such
as Whole Foods have also expanded their home delivery. So consumers have plenty of options. Now add another option…a big one. Amazon.
The eCommerce giant is finally wading into the online grocery and home delivery market. Not a surprise. And could have a major impact on the market. Can Amazon be successful? Of course. Unlike the likes of Webvan, Amazon has been perfecting their order management, inventory optimization and delivery for the past 20+ years. In doing so they have also built a fairly vibrant business (to the tune of $60b in revenue). Groceries are not going to make or break Amazon. However being able to apply what they know of eCommerce will give them a leg up on the start ups from the 1990s. Also, if their past is any indication, they will ease into this. They have already tested this out in their home market and are slowly rolling this out to other large metropolises where their distribution network can be best leveraged. Amazon also knows how to manage multiple smaller retailers. Have you ever noticed when you order products on Amazon that many times it is from another supplier…not named Amazon. They understand how to tie inventory from disparate sources, consolidate payments and move merchandise from these retailers.
Of course the food business is different than delivering books or CDs to your door. The largest issue is around food safety. Unlike the majority of other products that Amazon can deliver to your front door, groceries have a shelf life. This has haunted others who have ventured into this realm. With Amazon’s slow roll out of the offering I am going to assume they are working out the kinks with this aspect. They are already tackling one of the issues with forcing users to choose from two windows for delivery – hopefully cutting down on non deliverable items. That is a major issue with groceries…re-slotting a book in the warehouse is one thing, but having to transport and re-warehouse items like milk or seafood or frozen good is a whole other dilemma. If Amazon can solve this problem, how much harder will it be to deliver other items “same day.” Probably not that difficult. As this article points out, click here, if Amazon can solve the math they can most likely deliver anything from apricots to zubaz pants.
Finally could this foray into grocery delivery also lead to Amazon creating their very own fleet of trucks? Going after the last remaining dollars that Amazon has to share? Rather than having to rely on FedEx or UPS, Amazon can just leverage a delivery fleet to ship some of their items. They can also pocket all the shipping fees. One could envision a “value” add service, an expansion of the Amazon Prime. Pay for a premium service and 75% of your items will be delivered same day via the Amazon truck fleet. Cutting out reliance on 3rd party logistics.
Maybe Amazon’s foray into groceries is not necessarily about getting you fresh produce, but about learning how to do delivery, how to run a shipping fleet. Amazon has made investments by acquiring companies like Kiva to better run their warehouses. Now they can focus on how to most efficiently get material from the warehouse to your front door. If they can learn how to efficiently run the last mile logistics…look out world a new supply chain powerhouse.