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Can Amazon succeed in the online groceries business?

July 22, 2006

As a whole, the online grocery and food business has had a very rough past with a variety of high profile companies such as Kozmo, Webvan and a few others failing miserably as a result of their ambitious and impossible logistic requirements.

But since that time, companies such as FreshDirect and Peapod have built what appears to be sustainable eCommerce businesses and online grocery shopping is once again in the headlines, with big names such as Amazon entering the market.

The eCommerce pioneer is currently selling just non-perishable goods, so is not necessarily competing directly with FreshDirect and similar outlets who also offer fresh produce. However, Amazon's economies of scale and logistics expertise will ensure they will have a significant impact on that market.

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For all the other players that have tried it in the past, online grocery shopping has never been one of the more popular categories of Internet retail when compared with books or music, for example.

New research from WSL Strategic Retail shows that just 12 percent of US Internet users purchased groceries online last year, up from about 8 percent three years ago.

For all of last year, Jupiter Research has forecast that online grocery sales totaled $3.3 billion, up from $1.7 billion in 2003.

While $3 billion is nothing to be sneezed at, online grocery sales make up a very small percentage of current retail eCommerce sales, which eMarketer forecasts to be above $104 billion this year.

The most popular grocery item bought at Amazon currently is a 100-pack of Slim Jim beef jerky. What Amazon has to work out now is what book, CD or household item they should recommend to a jerky eater.

I can hazard a guess but will restrain myself on this occasion.

Source: eMarketer

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