Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Fresh Idea From, Inc. (AMZN)?

What Amazon Fresh means for Costco

Costco Wholesale Corporation (NASDAQ:COST)’s business model is vastly different than its competitors. The company charges an annual membership, about $55, and then prices its products around 15% above cost. Almost all of Costco’s profits come from the membership fees, and this allows Costco to have extremely low prices.

You could argue that, Inc. (NASDAQ:AMZN) is attempting the same type of model with Amazon Fresh, but that would require the service itself to at least break even. This is unlikely given the delivery overhead, something that Costco doesn’t have to deal with.

To some degree Costco Wholesale Corporation (NASDAQ:COST) is an experience, although not to the same degree as Whole Foods. People like shopping at Costco, something that is rarely said of traditional supermarkets. The low prices pay for the membership very quickly, and socially conscious shoppers appreciate that Costco pays high wages to its employees. And with a high membership renewal rate a Costco membership is extremely sticky. Amazon Fresh will not put a dent in the Costco Juggernaut.

The bottom line

Grocery delivery is a strange business. The market seems small, as people who shop at traditional grocery stores or chains like Wal-Mart care more about price than convenience. The target market appears to be the higher-end shopper who frequents Whole Foods or privately held Trader Joe’s, but it’s questionable whether or not convenience would trump the benefits that these types of stores offer. And environmentally it seems that door-to-door grocery delivery has a much larger carbon footprint than other options, potentially turning people off from the service. I don’t think that Amazon Fresh will revolutionize anything, instead being just another profitless business for, Inc. (NASDAQ:AMZN).

The article A Fresh Idea From Amazon? originally appeared on and is written by Timothy Green.

Timothy Green has no position in any stocks mentioned. The Motley Fool recommends, Costco Wholesale, and Whole Foods Market (NASDAQ:WFM). The Motley Fool owns shares of, Costco Wholesale, and Whole Foods Market. Timothy is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.