Online retail giant Amazon.com Inc., known for its speedy distribution of books, electronics and other consumer goods, is now trying to break open the grocery market.
The AmazonFresh service, running since 2007 in the retailer’s Seattle hometown, expanded to select Los Angeles ZIP Codes on Monday. The company is offering customers same-day and early-morning delivery on more than 500,000 products, such as apples, bread and even mozzarella di bufala from the Cheese Store of Beverly Hills.
Analysts expect the service to expand to nearly two dozen other markets by the end of next year, a prospect that Amazon declined to discuss. But the program may face the same difficulties that have dogged the rest of the $6-billion online grocery market, which has struggled for years to overcome lukewarm consumer interest.
“Though consumers are becoming increasingly comfortable with Internet purchases of books, movies, and the like, many appear to be hesitant to make food and drink Internet purchases,” Mintel researchers wrote in a recent report.
Even a company currently selling through Amazon expressed reservations about the expansion.
Ken Simril, chief executive of Fleischmann’s Vinegar Co. in Cerritos, said the food delivery service could encounter growing pains such as expensive fuel in the congested Southland and trouble navigating delivery trucks through tight hill and beach roads. In addition, the grocery industry is notorious for high costs and slim profits, he said.
“Amazon’s done a great job in the e-commerce space, but it’s different when you’re dealing with perishables,” Simril said. “They may have some new secret sauce to deal with it, but if they’re planning to just throw money and assets at the logistical challenges like everyone else, good luck.”
Amazon said it would fulfill orders out of its sprawling distribution center in San Bernardino. Amazon didn’t detail how it would handle deliveries from restaurants and specialty retailers that participate in the service, but noted that they could take longer than products coming from the Inland Empire warehouse.
Here’s how the service works:
Orders that come in by 10 a.m. will be delivered by 6 p.m. in sealed, temperature-controlled tote bags. Purchases made after 10 p.m. will arrive by 6 a.m., barring some items from local restaurants and specialty shops such as the Pie Hole and Steingarten LA.
Local subscribers to Amazon’s Prime program can try out AmazonFresh without a fee for 90 days but will have to shell out $299 a year afterward, which includes the $79 annual fee for Prime’s membership perks. Customers can avoid an additional delivery fee by spending at least $35 on groceries during each online shopping trip.
With its Internet grocery push, just a few months after launching an online wine marketplace last fall, Amazon is trying to muscle into an industry that has only recently gained some traction.
Years of food-safety scandals have left supermarket shoppers with trust issues. Many only feel comfortable buying groceries that they can inspect in person.
The industry has also been scarred by several high-profile flameouts.
Foster City company Webvan — which promised to deliver groceries in several U.S. markets, including Los Angeles — went bankrupt in 2001 and is owned by Amazon. Publix Super Markets Inc., which operates in the southeastern U.S., shut down its online delivery venture in 2003.
The recession also dampened online grocery growth, said Nikoleta Panteva, senior retail analyst with IBISWorld. Shoppers wanted to bargain-shop in stores and were wary of Internet delivery charges and membership fees.
But as the hiring market strengthens and disposable income increases, consumers have less inclination and free time to roam bricks-and-mortar grocery stores, Panteva wrote in a report last year.
Convenience has become key, especially as broadband Internet connections have surged 16.4% on average each year since 2007, Panteva wrote.
The online grocery industry is expected to grow 9.5% a year through 2017, compared with 1.2% growth each year from 2007 to 2012, according to IBISWorld.
AmazonFresh, whose Los Angeles rollout was first reported by the Wall Street Journal last week, is already sharing its space with some major rivals.
Google Shopping Express launched a test run in the San Francisco Bay Area this spring, offering free, unlimited same-day delivery from retailers such as Blue Bottle Coffee, Raley’s Nob Hill Foods and Walgreens.
Wal-Mart Stores Inc., the nation’s largest grocer, has also tested online supermarket shopping and delivery in California. But executives said this month that the program won’t be expanded until demand improves.
Online grocery delivery requires huge infrastructure investments, including a network of storage warehouses, a fleet of delivery vehicles with refrigeration capabilities and a horde of employees to process orders.
“There’s a huge fixed cost to doing groceries,” said Allon Bloch, chief executive of MySupermarket, an online price-comparison tool based in Britain — where Internet food shopping is far more entrenched — that just launched in the U.S. “It’s daunting, even just in L.A.”
But that hasn’t discouraged smaller operators. Regional outfits such as Peapod and FreshDirect on the East Coast, Pink Dot in Southern California and Gopher Grocery in Minnesota sell thousands of items online using features such as adjustable delivery times, bulk purchasing for families, freshness rankings, saved shopping lists and even food stamp payment alternatives.
Even purveyors of local and organic groceries — including Farm Fresh to You and L.O.V.E. Delivery — are setting up home deliveries for California customers. Many businesses are also testing click-and-collect options, in which customers worried about perishables left on their doorsteps can order groceries online and then pick them up at a local store.
For now, AmazonFresh competitors in Los Angeles aren’t too concerned about the behemoth in their midst.
Yummy.com, a Southland grocery delivery service that gets 20,000 orders a month, says the retail giant still has kinks to work out. Yummy says it can make deliveries in 30 minutes via its facilities in Hollywood, Playa Vista, Santa Monica and Silver Lake.
“Amazon will require you to plan ahead and then wait for your order, a bit like placing an order for dinner at a restaurant during breakfast,” said Yummy Chief Executive Barnaby Montgomery. “You just don’t anticipate your needs like that in the real world.”