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Amazon Is Taking On Wal-Mart With New Grocery Business

Friday, October 21, 2016 7:09
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amazon-a-logoRetail giant, Inc. (NASDAQ:AMZN) is rapidly building out its grocery pickup and delivery business, once again putting it in direct competition with Wal-Mart.

According to Bloomberg:

The e-commerce behemoth is building pickup locations for groceries in Seattle that could open by the end of the year, according to someone familiar with the plans, echoing a strategy embraced by its chief brick-and-mortar rival.

The move has been years in the making. The company started its grocery delivery service, AmazonFresh, way back in 2007. Initially offered only in Amazon’s home base of Seattle, the service has since expanded to 16 metro markets. In an important development, AMZN was recently able to turn a profit on the service:

Recently AmazonFresh hit a milestone when it stopped losing money in Seattle, according to the person. Earlier this month, the company dropped the price from $299 a year to $15 a month in the U.S. — $180 annually — which proved immediately popular with shoppers and emboldened Amazon to accelerate its grocery ambitions, the person said.

Selling groceries — even via traditional brick and mortar stores — is a difficult business to begin with. Margins are exceedingly low, competition is high, and spoilage is a constant issue. Delivering groceries is even harder, since it requires several additional layers of logistics.

But the opportunity to disrupt the $600 billion grocery business is huge — and if there’s anyone that can pull it off, it’s Amazon.

Amazon shares rose $1.50 (+0.19%) to $811.82 in Friday morning trading. Year-to-date, AMZN has gained 19.77%, versus a 4.49% rise in the benchmark S&P 500 during the same period.


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