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RetailNetGroup is out with an extensive analysis of the likely expansion of the AmazonFresh e-grocery service that has been pioneered by Amazon in Seattle, but probably will be extended to San Francisco by this June and Los Angeles by October. "The expansion," the analysis says, "has implications for the grocery and CPG market online and offline, but could also be Amazon's Trojan horse for same-day delivery in the US," and could "roll out to as many as 40 US markets by the end of 2014."

The analysis suggests that Amazon is focused on breaking even, not making money, with the service, and seeing it in strategic rather than tactical terms, because it is "a powerful way to drive frequent customer interaction" and "helps Amazon justify its own 'last-mile' logistics fleets in major urban centers, putting Amazon trucks in high-density neighborhoods on a daily basis, and potentially changing the economics of same-day delivery."

Some excerpts:

• "Amazon sees itself as unmatched in terms of merchandising and logistics - AmazonFresh requires no minimum order and offers 100k SKUs of general merchandise with grocery orders. It was the first to unattended delivery and its pre-dawn doorstep delivery is its most popular option, accounting for 50-60% of orders. According to former AmazonFresh executives, Amazon also considers its picking and delivery efficiency to be world-class, superior to both long-time incumbents like Peapod and newer depot-picked models like Ocado."

• "Interviews with former executives also indicate that AmazonFresh's customer retention rate is very high and that once acquired, customers shift large shares of their grocery wallet to Amazon. That said, customer acquisition has always been Amazon's biggest hurdle for Fresh, and RNG expects AmazonFresh to put major emphasis on customer acquisition in their imminent expansion. Expect deals on initial orders, IP-address targeted ad space on Amazon's main page, direct mailings, local out-of-home media campaigns, and more. RNG also expects Amazon to ask large vendors for support."

• "Though Peapod and FreshDirect are perhaps the more obvious competitors Amazon may face as it expands to new markets, RNG DIGITAL considers Walmart the most significant. Walmart has been quietly incubating its own grocery delivery service in the Bay Area and now Chicago, led by a former ASDA executive with considerable experience in the space. If Amazon expands as aggressively as it is posturing to, and if full-basket delivery is as strategic as RNG believes it could be, Walmart is the US retailer best positioned to respond. Still, despite solid strategy and capabilities, Walmart’s internal conflicts between its core brick-and-mortar business and its increasingly relevant online businesses could hold it back."
KC's View:
This is the argument that MNB has been making for months ... that AmazonFresh may have different metrics for success than other programs that appear to be directly competitive, and that the ultimate battle may be between it and Walmart.

It seems clear that an AmazonFresh expansion is about to happen, and that it will have impact. Which is why food retailers need to be focusing on how to make themselves competitive in this space, and how to create differential advantages that will short-circuit Amazon's efforts to appropriate their customers.

And they need to do so now.