Amazon’s Grocery Delivery Business Coming to New York City
September 26, 2014, 8:22 AM PDT
Amazon is preparing to start its Fresh grocery delivery business in New York City as early as next month, according to two people who have been briefed on the plans, as the online retailer takes more aggressive steps toward making its same-day delivery service national.
The company has been building up its food inventory in a warehouse in Avenel, N.J., with the goal of launching its grocery delivery business in New York City as early as October, one of these people said. The warehouse is located about 20 to 25 miles from Manhattan, in a part of New Jersey near Staten Island, New York.
Re/code previously reported that Amazon was prepping this facility for grocery delivery, but it wasn’t clear at the time whether it would be used to launch the delivery business in New York City or New Jersey.
Amazon may eventually launch its grocery delivery business in Philadelphia as well, using food stored in the Avenel facility, this person said. Rumors of launches in other east coast and midwestern cities have intensified in recent months in grocery industry circles.
Amazon Fresh currently delivers fresh and frozen foods to customers in Seattle, and in and around several major California cities, like San Francisco, Los Angeles and San Diego. Customers who place orders before a certain cut-off time in the morning receive their grocery deliveries that same day. Customers who place orders later receive their goods the following morning. Amazon makes new Fresh customers sign up for a $299-a-year Prime Fresh account, which includes same-day or next-day delivery of groceries along with a growing catalogue of other non-grocery products such as electronics and books.
In New York City, Amazon will be competing against FreshDirect, a 15-year-old business that is said to do around $400 million to $500 million in annual sales, according to multiple grocery industry executives. It will also be going up against Google’s new Shopping Express business as well as the startup Instacart, backed with $55 million in venture capital, whose delivery people ferry groceries from physical stores such as Whole Foods and Costco to customer homes. A company called MyWebGrocer also helps some brick-and-mortar grocers set up their own delivery business.
For Amazon, the $600 billion grocery industry remains one of the giant opportunities it has not yet cracked. A wave of young grocery delivery companies crashed and burned during the dot-com bust, but the popularity of mobile apps and the rise of Uber-like workforces have reignited interest in the business idea. Amazon, for its part, is taking a relatively old-school approach, buying up groceries in bulk and storing them in warehouses around the country. It recently began partnering with the U.S. Postal Service to help deliver its groceries.
While the grocery business can be characterized by low margins, Amazon sees it as a way to dramatically increase order frequency among its best customers, which will allow it to make same-day delivery of higher-priced, higher-margin goods more affordable.
An Amazon spokeswoman declined to comment.
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