Amazon’s Grocery Business Learns From Webvan That Rapid Growth Is The Enemy Of Fresh

Posted: June 17, 2013 in eCommerce, GT
Tags: , , ,

Amazon is moving deeper into at-home grocery
delivery with AmazonFresh, which is expanding to
L.A. as of last week, and which is set to continue to
roll out to further markets over the course of this year
and beyond. But it learned to take things slow from
Webvan (the name and web presence of which it now own), the famous home grocery delivery flare-out of
the 90s, and also to limit delivery areas to only high
density urban areas, and to pursue as efficient a
warehousing strategy as possible, according to a new
Reuters report. How did Amazon learn those lessons? Well it helped
to have the guys who made the mistakes to begin
with in the room, for starters. Amazon has four former
Webvan executives on its staff, and acquired Kiva
Systems last year, a robotics company that was
founded to solve some of Webvan’s original problems and answer questions raised during its brief tenure
before IPO and collapse in 2001. While AmazonFresh does potentially offer the chance
to disrupt a massive market in a way that could run
parallel to how Amazon has already forever changed
electronics, home furnishing, clothing, accessory and
other retail markets, groceries are a different beast.
Margins are low, inventory is infinitely more perishable, and delivering quotidian supplies to an
entire market’s worth of grocery shopper is an entirely
different type of logistical problem compared
with occasionally sending them off a hard drive or t-
shirt. Which is why it has taken AmazonFresh over five
years to go from Seattle, to L.A. But now the goal is
to cover San Francisco Bay later this year, and then
to spread to as many as 20 markets throughout 2014.
But the expansion needs not only be city-to-city; a
key component of sustainable growth is building up regions within cities to maximize route efficiency, so
that plotting customer additions at the level of the
neighborhood becomes crucial to successful
deployment, the Reuters report says. Another key ingredient, according to the report, is
Kiva. The robotics company that Amazon bought
presents an incredible advantage for warehousing, as
a robotic workforce can work much more efficiently
and quickly than the conveyor belt system which was
in place at Webvan, and which broke down completely when just a single element went wrong
thanks to its linear nature. Those factors, combined with Amazon’s massive
existing user base, are what the company is betting
will help it succeed where Webvan failed. But
Amazon also has something that Webvan didn’t
necessarily, and that’s massively entrenched brands
that have huge existing retail presence, like Walmart, which didn’t really get into groceries in a big way until
after Webvan’s collapse, and which is also at least
trialling at home delivery. In the U.K., Canada and
other locales, other chains are also either trialling or
have implemented their own delivery services for
groceries, too, which means it’s no longer an uncontested space. Still, there were online stores before Amazon, too,
and we’ve seen how that played out. If indeed
Amazon’s five year experiment with AmazonFresh
has provided the know-how needed to make online
groceries work at scale, the next decade could be one
in which everything we know about shopping for food dramatically changes.

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