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Not content to sell everything from video downloads to cosmetics to furniture, Amazon.com (Nasdaq: AMZN) quietly rolled out a new service Wednesday called "AmazonFresh," a grocery store and home delivery site. Currently stating availability only in the Seattle area, the grocery service appears to offer similar services as such spectacular dot-com boom era failures as Webvan.com and Kozmo.com.
"Welcome to AmazonFresh, the Seattle area's newest online grocery service founded by Amazon!" reads the message on the AmazonFresh site. "We offer thousands of fresh, frozen and shelf-stable grocery items -- from farm-fresh produce and meat, to milk and eggs, to ice cream -- all accessible in a fraction of the time it would take to go to the store and shop."
Online Grocer
The Internet retailer has started accepting orders for fresh produce and other groceries items, including natural, organic, wheat-free, kosher and other specialty brands for delivery in the Seattle area.
Customers can choose three different types of delivery, according to the AmazonFresh site. With "Pre-Dawn Delivery," users place their order and, the next morning, will find their groceries on their doorstep in reusable, temperature-controlled totes. "Daytime Delivery" brings customers their orders as soon as the next day. For customers who hate shopping but do not mind picking up their orders, AmazonFresh provides a "Local Pick-Up" option for consumers to go to a local pick-up location and retrieve their orders the same day whenever it is convenient.
The service is available by invitation only. Customers interested in receiving an invitation can request an access code. Goods such as books, DVDs and CDs for sale on the Amazon.com site cannot be purchased or delivered by AmazonFresh.
Risky Business
During the Internet boom of the late 1990s, several enterprising entrepreneurs thought the market would welcome grocery delivery services. New York's Kozmo.com, Urbanfetch, Publix Direct and HomeGrocer.com all had strong financial support. Amazon itself invested US$60 million in Kozmo.com and ponied up $42.5 million for HomeGrocer.com.
Then, of course, there is Webvan.com, an ambitious service started by Borders bookstore cofounder Louis Borders in the San Francisco Bay Area. The company promised to provide grocery delivery within a 30-minute window. Stoked with $375 million in just 18 months from an IPO, the company quickly expanded to eight cities. It's downfall came as the company sought to build a massive infrastructure.
"There is a need there and a consumer interest that Webvan tried to tap into in the early days," Greg Sterling, principal analyst at Sterling Market Intelligence, told the E-Commerce Times. "They just went about it the wrong way. They built up this huge and costly infrastructure, and the consumer market really hadn't developed at that point to make it economically feasible."
"Amazon is an extremely entrepreneurial company that 'throws a lot of things against the wall' if you will, to see what sticks," Sucharita Mulpuru, a Forrester Research retail 
analyst, told the E-Commerce Times. "And this seems to me to be another example of that."
Amazon.com, she said, looks at firms such a FreshDirect that have been able to carve successful businesses in the New York area and see it is a great way to approach a new business. From a high level, Mulpuru's perspective is that it's a small, limited test that is only in the Seattle area for now, where Amazon.com has strong brand presence and distribution.
Caution Ahead
If Amazon.com, which has set up the Bellevue, Wash., distribution center and purchased its own delivery trucks, plans to roll out similar infrastructure in every major metropolitan area, Sterling recommended that they move carefully and thoughtfully.
"They have to make sure that demand is there," he explained. "This works for certain market segments -- people who are older or have difficulty getting to the store or people who are pressed for time -- but by and large this kind of service will not substitute for traditional grocery store shopping."
There are many reasons why such ventures struggle for success , Sterling said. People want to see the produce and make choices for themselves. However, he acknowledged that given enough time this type of service could prove a success.
"Over time you could see a market for this develop as a complement for traditional grocery store shopping or for segments of the population that have trouble getting to the store," he admitted.
The Right People
Part of the key for Amazon will be moving into cities that have a good demographic population of online shoppers with access to high-speed services, Mukul Krishna, a Frost & Sullivan analyst, told E-Commerce Times.
"People are very busy, and one of the reasons why grocery stores are open 24 hours is that it gives people the convenience to shop once they have wound down from their day," he stated. "If they have an option, 'Let me order it tomorrow morning while I'm having my coffee and my doorbell will ring and I'll have it on my doorstep,' that is a very good value proposition."
It will save consumers a trip and at the same time gives people a lot of convenience. That is why, Krishna said, companies are very careful in choosing the demographic for the service. Dealing with non-perishables, a service can do it anywhere, but when perishables like fresh produce are involved, companies have to be very careful because they want to build a service based on the pilot program.
"[Amazon] is looking at charging a little bit of a premium because of the convenience factor," Krishna stated, "and that is why you have to be careful about the demographics."
College students, who typically survive on diet full of fast food, take out and pizza delivery, will be less likely to use a service of this type, Krishna pointed out. However, an upwardly mobile technologically savvy family living in a middle-class or upper middle class neighborhood with good infrastructure and a lot of history with online purchases would be ideal.
"If the bill is $5 or $6 dollars more than they would pay at the grocery store, then they would not think twice about using the service," he said.
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