Amazon-Fresh: A new competitor in the grocery market

Amazon is one of the leading companies in the world when talking about logistics. You just need to visit their website, find the product you need, buy it online and it will be delivered to your home within 2-3 days. And if you are a prime member, you just have to wait one day or even pay a little extra fee for same-day delivery. To do so, Amazon runs huge warehouses all over the world located at strategic places, so that distances between retailers and customers are minimized. Besides that, product picking is fully automated to speed up the consignment process.

How ever, when it comes to fresh food, the tasks becomes more complicated. Fruits and vegetables as well as fresh meat, fish or dairy products require special storage and transport conditions to stay fresh and healthy. Strawberries for instance require a constant temperature of 4° celcius and additional low-oxygen atmosphere in order to stay fresh during a 3-4 days transport and storage period – requirements Amazon isn’t able to fulfill in its own distribution centers. Therefore the company created a new strategy for grocery.

Instead of investing a lot of money in own warehouses, Amazon leases storage capacity in grocery warehouses that are located in regions they want to enroll their business. Products sold come from big retailers such as Taylor Farms etc. Cosidering the supply chain of grocery, Amazon enrolls its business only at the last step, but instead of competing in the traditional grocery stores market, the company creates a new business model by delivering food directly from the whole salers to the customers.

(Traditional grocery supply chain)

The business model is as followed: After ordering online out of a catalogue of about 20.000 products, Amazon fresh delivers the ordered grocery either at the same day or the next morning. It therefore has its own fleet of small trucks. Each delivery costs 5$ when the total bill is below 35$. Orders bigger than 35$ are free. Alternatively, Amazon offers a one-year free delivery service, which costs 299$/year. A prime-account is necessary in both alternatives.

Amazon started started in 2007 in Seattle, USA and since then expanded to Los Angeles and San Francisco (2013), San Diego, Philadelphia and New York (2014). In february 2016, Amazon announced to have signed a cooperation agreement with Morrison’s, UK’s number 4 grocery store.  Further expansion to other countries is planned.

 

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