While it may be another one of Jeff Bezos’s ideas to gain market share while losing money, the Amazon.com Inc. (NASDAQ: AMZN) grocery store business will start to make deliveries. It is a way to flank major rivals that do not have similar services.
The delivery service will be part of Amazon’s Prime free delivery and streaming video operation. Management of the e-commerce and cloud computing company said:
Amazon and Whole Foods Market today announced the introduction of free two-hour delivery of natural and organic products from Whole Foods Market through Prime Now, with plans to expand across the U.S. in 2018. Starting today, Prime customers in neighborhoods of Austin, Cincinnati, Dallas and Virginia Beach can shop through Prime Now for bestselling items including fresh produce, high quality meat and seafood, everyday staples and other locally sourced items from Whole Foods Market. Customers can start shopping from Whole Foods Market selection at http://www.primenow.com or by using the Prime Now app available on Android and iOS devices.
The project does three things for Amazon, even if it initially makes no money. First, it allows Amazon to test delivery in a few relatively small cities. While Dallas and Cincinnati may not be small by many definitions, the test is not taking place in locations where it would be more expensive, like New York or Los Angeles. It is a small investment to prove a concept.
Second, it is a chance to bolster the offerings of Prime. Amazon raised the monthly price of the service to $12.99 from $10.99 earlier this year. The primary benefits of Prime are free delivery of many products sold at Amazon.com, a huge streaming media library and discounts on some items. Amazon has a great deal of competition in the free delivery business for items it sells. Prime’s video business faces a number of powerful competitors, led by Netflix and Apple.
Finally, Amazon has to beat its competition. Walmart and Kroger are much larger than Whole Foods, and together they have a huge portion of the grocery store market in the United States. However, neither has a significant grocery delivery system. Amazon may be able to drive customers with its grocery delivery operations.
Bezos has once again started to turn a large segment of a U.S. industry on its head. So far, many of his bets have been successful.