Amazon is looking to broaden its range of products, and will kick off this expansion by offering consumer packaged goods to its ‘Prime’ customers.
Amazon, which has made its name as a retailer of cultural and entertainment products, gadgets and online games, is now looking to broaden its market. The company has just rolled out its Amazon Fresh home delivery grocery service in its third city – San Francisco, following on from Seattle and Los Angeles – and in the near future intends to offer consumer packaged goods (CPG) such as washing powder and mustard. US research institute Bernstein Research recently estimated that the CPG market potential for e-commerce firms was worth around $470 billion per year and that Amazon could profitably capture some $222 billion of this consumer spending. The new business, to be called Pantry, is scheduled to launch in 2014, and will be competing head-to-head with warehouse club stores Costco and Wal-Mart's Sam's Club.
Amazon Pantry, online CPG shopping service
The Amazon Pantry service is aimed at current members of the Amazon Prime delivery program, which offers free-of-charge two-day shipping on all qualifying purchases for a basic annual fee plus reduced rates for same-day delivery. Amazon Pantry will launch with a range of around 2,000 items of the sort you would typically find in supermarkets, such as cleaning products, kitchen paper rolls, canned goods, dry grocery products, etc. ‘Amazon Prime’ customers will be able to put as many items as they like into a set-sized box with a maximum weight limit, and this will be delivered for a small charge. Delivery will be made through a package delivery company such as UPS or via Amazon’s network of trucks that are used to deliver Amazon Fresh.
A retail giant working across a number of segments
The main obstacle, which Amazon will have to surmount, is consumer habit. Consumers do not yet automatically buy everyday items on the Internet, and they are even less likely to associate the Amazon website with such shopping. Moreover, consumers tend to think that getting these kinds of goods delivered does not come cheaply, which is why the majority of this shopping still takes place in bricks-and-mortar grocery stores. In order to overcome the psychological ‘delivery cost’ barrier, the e-commerce giant has decided to focus first on its ‘Prime’ customers. By encouraging customers to put a number of items in a single box, the firm hopes to increase the revenue generated by each order, which should in turn serve to cover the shipping cost. Moreover, Prime clients are a high-value target group for Amazon. According to equity securities research firm Consumer Intelligence Research Partners, they spend 40% more than other Amazon clients. The Seattle-based firm is hoping that this new business will drive it forward from just being the largest culture and entertainment retailer to become the largest overall retailer worldwide. If Amazon can capitalize on its close relationship with Prime customers, plus its existing infrastructure and its well-known online shopping channel, it should be able to make aggressive inroads into the CPG market and start to rival major incumbents such as Costco.