business news in context, analysis with attitude’s entry into the food business, first reported on MNB back on May 25, continues to generate coverage by the mainstream press:

• The Wall Street Journal reports on the increased competition among Internet grocery companies vying for consumer dollars.

“For people with kids or packed schedules, spending $5 to $10 on the average delivery cost may be a small price to avoid the supermarket experience. It's also a boon for senior citizens, disabled persons or others who might have trouble lugging groceries around,” the WSJ writes.

“Provided, of course, they can get their orders placed without too much trouble. For instance: If you have a dial-up Internet connection, don't even bother. The ordering process requires a lot of clicking, and the Web sites -- often loaded with photos -- probably will be too slow.

“For people with faster connections, Web grocers are starting to make it easier to do things that would be a hassle in a regular store aisle. For instance, will let you sort items by calories, fat and other nutritional measures. groups products into helpful usage charts that, for example, advise customers that grape tomatoes are better in kabobs than in sandwiches.”

Shipping costs remain a major issue: “A $200 purchase at NetGrocer, for example, will set a Colorado resident back $88.99 in shipping fees.

Another option appears to be spreading, too. Some supermarkets, like 23 Harris Teeter stores in the Southeast, let customers do their shopping online, but require them to pick it up in person. (A ‘personal shopper’ assembles the order so it's ready to go once you get there.) It typically costs $5 or less.

“While it lasts, Amazon's free shipping offer on nonperishables is a pretty good deal. By using Amazon versus a local supermarket in Washington, D.C., for example, I could put seven 16-ounce boxes of MultiGrain Cheerios in my cabinet and save nearly $3, without leaving the house.”

• The New York Times coverage of Amazon’s move into grocery seems to focus more on its connection to the company’s Amazon Prime shipping program, which gives customers who pay $79 a year two-day delivery on everything they order – no matter how many orders they place. Grocery shipping is included in the Prime program.

“Wall Street analysts are suspicious of Prime, since cheaper shipping threatens to diminish Amazon’s profit margins, which have rebounded over the last year after slumping for years,” the NYT writes. “Gross margins for the company’s American businesses have reached about 27 percent, after dropping to about 24 percent in 2004.

“Amazon’s chief executive, Jeffrey P. Bezos, has defended the program as costly but necessary to maintaining long-term customer loyalty.

“The introduction of the grocery store promises to intensify that debate, since it could accelerate customer demand for the program. Even if Prime subscribers make enough grocery purchases to get free shipping on many items, though, the site can still protect profit margins, said Maria Renz, who, among other duties, helps oversees Amazon’s grocery section.”
KC's View:
The problem with much of this commentary about Amazon’s foray into groceries is that it treats the initiative almost in a vacuum…you have to see this retailing venture within the context of everything else that Amazon sells, and how it can connect the dots among customers’ various interests and sell them not just food but cookbooks and kitchen utensils and maybe even training videos for cooks.

This isn’t just a new store for Amazon. It is part of a master strategy for a company that has created maybe the best, most comprehensive frequent shopper program in retailing. The payout will be long-term, not short-term…but we think each of these moves is a masterstroke.