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article imageAmazon plans big expansion of online grocery service

By Ashley Woods     Jun 5, 2013 in Business
Los Angeles - Beginning this week, Amazon will expand their online grocery service, AmazonFresh, to the L.A. market. If the venture proves successful, AmazonFresh will tap the San Francisco market later this year.
Amazon has been experimenting with a grocery service called AmazonFresh for the last five years in Seattle. The service delivers fresh produce to customers seeking promptness and convenience.
The program is on the verge of an expansion. As soon as this week, Amazon will begin offering AmazonFresh-type services outside of Seattle, beginning with L.A. and San Francisco later this year. If the venture proves successful, Amazon has 20 other urban markets it will try to break into next year.
The Seattle-based AmazonFresh has struggled to turn a profit since its inception, but insiders hint of recent breakthroughs. The outcome of the L.A. and San Francisco markets will determine the continued expansion.
Grocery sales totaled $568 billion last year and with its virtually untapped online potential, Amazon could easily outperform similar, smaller online grocery services.
"Amazon has been testing this for years and now it's time for them to harvest what they've learned by expanding outside Seattle," said Bill Bishop, chief architect at Brick Meets Click, a consulting firm focused on retail technology. "The fear is that grocery is a loss leader and Amazon will make a profit on sales of other products ordered online at the same time," he said. "That's an awesomely scary prospect for the grocery business."
The AmazonFresh expansion might threaten brick-and-mortar stores, but it is highly unlikely that Amazon would become a dominant force in the grocery market. Many shoppers could refuse to pay the cost of convenience by purchasing their groceries online.
“The demand for online ordering and delivery to home is a relatively small part of the market. It’s under 5 percent,” Bishop says. “At the end of the day, a lot of it has to do with people’s willingness to pay extra for services they’ve historically performed themselves.”
Amazon is not the only company seeking an expansion in the online grocery business. Wal-Mart is currently testing same-day and next-day delivery of online grocery purchases in San Francisco.
"We are ready and able to expand grocery delivery in the U.S. as the market demands," Wal-Mart spokesman Dan Toporek said.
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