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Amazon gives grocery business a tryout

6:39 PM, Dec 11, 2013   |    comments
An Amazon Fresh truck in San Francisco (USA Today)
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SAN FRANCISCO (USA Today) -- Amazon.com launched its grocery delivery business, AmazonFresh, in San Francisco Wednesday as the world's largest Internet retailer expands further into the giant consumer packaged goods sector.

AmazonFresh offers more than 500,000 items for same-day or early morning delivery, including fresh groceries and food from specialty shops in the city to toys, electronics and household goods.

Delivery is free on orders over $35. Orders can be placed by 10 am PST for delivery the same day and by 10 pm PST for delivery by the next morning, in time for breakfast, Amazon said.

AmazonFresh started as a test in Amazon's home town of Seattle several years ago. The service launched in Los Angeles earlier this year and now San Francisco. If those cities perform well, the company may expand to many other cities and even outside the U.S. next year.

The move steps up pressure on grocery store operators such as Safeway, Kroger and Whole Foods Market, as well as Wal-Mart Stores and Target, which also sell a lot of food and consumer packaged goods along with general merchandise.

Consumer packaged goods, including perishable food, is a $222 billion a year potential opportunity for Amazon in the U.S., according to a recent estimate from Carlos Kirjner, an analyst at Bernstein Research.

However, it is difficult and expensive to deliver fresh food quickly to a wide geographic area and several start-ups, including Webvan, went bankrupt trying to build such businesses during the first dot-com boom.

And Amazon is dropping its usual low-price strategy for the grocery expansion, a move that could limit its expansion potential.

Amazon said Wednesday that AmazonFresh will be offered as a free 30-day trial in select parts of San Francisco.

After that, customers have to sign up for Prime Fresh, which costs $299 a year. For that, shoppers will get AmazonFresh grocery deliveries and the benefits of Amazon's Prime subscription, which include free two-day shipping on most of the other products sold on Amazon.com.

"That seems like a huge hurdle for shoppers to jump just to order groceries online, and artificially limits their addressable market," said Dan O'Connor, CEO of RetailNet Group.

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(USA Today)

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