That’s right. Amazon.com, Inc. (NASDAQ:AMZN) is introducing itself to a $850 billion market that very few people know about. This market is based on personal consumption expenditures data from the Bureau of Economic Analysis — it’s produce. No, this near trillion dollar market isn’t global, it’s just in the U.S.. Let’s take a look at what it is, what the growth opportunities are and how it might affect other grocers.
What exactly is it? It’s basically an online grocery business that offers same-day delivery for orders over $35. How does Wal-Mart Stores, Inc. (NYSE:WMT) compete with that? Pricing? Maybe. It’s a matter of convenience. People are willing to pay more money for the convenience of never having to leave their house, but still be able to go grocery shopping. What’s it worth to you?
Think about it. Get on your computer, order lettuce, chips, bread, potatoes, spinach, and your favorite cake. A few hours later, the food arrives at your house. Obviously this is convenient for elderly people, as shopping is often a big hassle. It is also convenient for parents with kids. This solves the issue of going to a store and forgetting half of what you went for because you are more worried about losing your little ones. AmazonFresh is all about convenience.
Wal-Mart Stores, Inc. (NYSE:WMT) has nearly 4,500 stores nationwide. Amazon.com, Inc. (NASDAQ:AMZN) is just getting started and its website shows that AmazonFresh is now available in the Los Angeles area. Reuters has reported that the San Francisco Bay area will soon be added.
The cost of AmazonFresh
The actual cost of the food is supposed to be very competitive with the major grocery stores. There is a kicker, which is where Amazon.com, Inc. (NASDAQ:AMZN) will make most of its money. Like Costco Wholesale Corporation (NASDAQ:COST), there is a membership fee. Costco’s annual membership costs $110. Amazon Fresh is far more expensive, but again, people are paying for convenience. The annual Amazon Fresh membership fee is $299, however, this fee includes Amazon Prime benefits.
Amazon has seen amazing success with Amazon Prime, so why not follow up that effort with a similar one? Brand Stone wrote in Bloomberg Businessweek, “Amazon Prime may be the most ingenious and effective customer loyalty program in all of e-commerce, if not retail in general.” Amazon Prime members spend double that of non-members. Piper Jaffray conducted a survey in 2011 which showed that 92% of members would renew their membership. With that type of loyalty, how much could Amazon.com, Inc. (NASDAQ:AMZN) grow with the AmazonFresh service?