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USA Today reports this morning that Amazon is developing a new business called Pantry, specifically designed to compete more effectively with warehouse clubs such as Costco and Sam's. The initiative, which Amazon is not talking about, reportedly will launch in 2014, will use four of the company's distribution facilities to begin with, and will be run by Billy Hegeman, a senior manager in vendor management and consumables at Amazon.

According to the story, "The service will be targeted at existing members of Amazon's Prime shipping program. It will launch with about 2,000 products typically found in the center of grocery stores, such as cleaning supplies, kitchen paper rolls, canned goods like pet food, dry grocery items like cereal and some beverages.

"Amazon will let Prime shoppers put as many of these items into a set sized box, up to a specific weight limit. If the products fit and they don't exceed the maximum weight, Amazon will ship the box for a small fee … Encouraging consumers to put multiple items into a single box increases revenue from each order, potentially helping Amazon cover the shipping cost."

The story goes on to say that "Pantry will put Amazon into much closer competition with Costco and Sam's Club, which specialize in selling a limited number of items in huge volume at very low prices, according to retail industry experts … Warehouse club members tend to be higher income households with kids — the type of shoppers that have huge lifetime value to retailers.

"The demographics of an Amazon shopper are similar to the club store shopper and Amazon wants to appeal to that audience, one of the people familiar with the effort explained."
KC's View:
What I don't completely understand about this initiative is that I'm not entirely sure how it is better for me than the combination of Amazon's Prime and Subscribe and Save offerings, both of which I use to great effect and keep me from having to brave the lines at Costco.

Maybe it is really just a marketing ploy - a way of repackaging existing services in a way that makes them more accessible to people not currently buying such products from Amazon. Of which there are many.

In that sense, this could be a very big business for Amazon if it takes off … and Amazon has all the data necessary to know which customers are at the center of the bullseye, and it knows how to target them effectively.

And, if it works, it won't just impact the clubs … it'll also affect all the stores that sell such products, that now will find themselves facing yet more competition.