AMAZON FRESH: Rekindling the Online Grocery Market

What is your assessment of the online grocery market opportunity? What explains prior
failures in this market?

Grocery is an attractive sector, it is the largest retail category in the US, and in 2012 less than 2%
of transactions were made online. The online grocery market opportunity is huge, not only
because is the largest single retail category in the US, but also because consumers shopped for
groceries frequently (2.2 times per week on average). Groceries are especially an attractive
sector because is downturn-resistant compared to other markets.
There must be a reason why big companies are not migrating online, and the ones who try, fail.
Probably one of the main reasons is the logistics that this type of industry requires, and because
it’s very difficult to plan the logistics, therefore is hard to expand. Many of the companies that
tried to win this market did not have the proper strategy for expansion phase.
Moreover, the timing of expansion and testing are key stages that, for example, Webvan did not
take into consideration. Instead, they expanded into a new territory before demonstrating
success in the first market. According to one of the board members, the company expanded
into other regions too quickly, before it demonstrated success in one market the company had
already expanded to multiple new markets.

Examine the approach to setting up AmazonFresh as a new business venture. What do you
like/not like about what Bezos has done?

Amazon contacted the former CEO of HomeGrocer for insight on the business model launched.
AmazonFresh offered over 100,000 products that consumers could place in a digital basket, and
the delivery was free, and often came with samples and gifts to promote goodwill.
I like how Bezos listened to customer feedback and adjusted the company based on it, drivers
were instructed to drive slower and turn the headlights off when delivering late at night due to
noise complaints.
AmazonFresh expanded much slower than the previous failed online grocers, it only expanded 1
or 2 zip codes at a time, and consumers could vote where to expand next.
I like how Bezos kept the AmazonFresh warehouse for nationally supplied items, which enabled
tight control over quality.
I also like that Bezos acquired distribution centers from Safeway, rather than build his own.
Bezos gave customers 2 choices of delivery, kitchen or doorway. Kitchen delivery meant drivers
delivered groceries in crates directly to the kitchen, and doorway delivery meant that
consumers got their orders on their doorstep in reusable totes and insulated coolers that kept
the freshness of the products. AmazonFresh operated its own delivering fleet since Bezos was
not satisfied with third-party delivery organization.

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 Should Bezos direct the Fresh team to continue refining Amazon Fresh’s business model or
expand to another city?

In my opinion Amazon should expand to one nearby big city and try the business model there.
They can experiment in the new city, try out new delivery methods and see which ones fit best.
I also believe that they should continue refining Amazon Fresh’s business model while
expanding to a new city. Amazon can still work to improve the model while expanding to a new
city.

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