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Analyst Blog

As per AllThingsD, Amazon.com (AMZN - Free Report) is about to launch its online grocery delivery service, AmazonFresh in San Francisco. The service is expected to hit the market on Dec 10, exactly six months after it first expanded out of Seattle and into Los Angeles.

Amazon had quietly introduced AmazonFresh in 2007 in a limited manner near its headquarters in Seattle. The service enables users to order groceries online and get delivery on the same day or the next day, thus saving time and effort.

Though Amazon is not very optimistic about generating high margins from the grocery- delivery service, it expects that this expansion will help to widen its operational activities (shopping) to different categories from electronics to clothes to household essentials.

With a view to make this expansion a success, Amazon has already started investing in warehouses.

Amazon’s expansion plan is likely to pose a threat to other existing grocery chains like Kroger Co (KR - Free Report) , Safeway Inc and Whole Foods Market (WFM - Free Report) , as well as other retailers such as Wal-Mart Stores Inc. (WMT - Free Report) and Target Corp (TGT - Free Report) .

Grocery is one of the most difficult sectors to crack, especially when it comes to online shopping as is evident from the now defunct business of Webvan. These endeavors often meet with failure as the operational cost (cost incurred in maintaining infrastructural facilities for delivery on time, warehousing facilities for storage of goods, etc) is exorbitant while margins are low. Also, since the grocery items are mostly perishable in nature so it further increases the chances of wastage and hence, it is not possible to forecast demand too in this sector.

Currently, Amazon has a Zacks Rank #3 (Hold). Better-ranked stocks in the technology sector include Netflix Inc (NFLX - Free Report) with a Zacks Rank # 1 (Strong Buy), and Priceline.com Inc. (PCLN - Free Report) and Stamps.com Inc. (STMP - Free Report) , both with a Zacks Rank # 2 (Buy).