Amazon Home Food Delivery

Online Distribution

What do you think of Amazon's move to online grocery delivery? Does it give the company a competitive advantage?

Amazon's move into online grocery delivery gives the company a significant competitive advantage against other online food retailers and smaller regional food chains. The basis of Amazon's competitive strength is its extensive expertise in supply chain management, logistics, pricing and the ability to quickly ramp up warehouses and integrate them into a broader network. In reality Amazon has emerged as a distribution-centric business first. Its retail operations capitalize on how effectively the company manages commodities and creates sales by using pricing and availability as the two main drivers of sales and resales. Based on all of these factors and the company's extensive expertise with cloud computing as evidenced by its Amazon Web Services (AWS) division growing faster than any competitor in the cloud platform arena, Amazon has the supply chain scale and technology to excel in online grocery delivery.

Amazon has so many structural components that contribute to its competitive advantage in online food retailing, its greatest challenge will be which regional markets to concentrate on first. As the company experiments with market concepts and fulfillment strategies in Seattle, Washington and throughout the Los Angeles area, the challenge will be increasing inventory velocity and managing supply chain performance to profitability. The one area of the Amazon business model that is a challenge is profitability. As a distribution-centric business, it has a very low Return on Sales, razor-thin margins and faces a constant challenge of being profitable. In the online grocery delivery business, Amazon has the opportunity to sell higher-end products and therefore turn this weakness into a strength over time. It will be a challenge however as their systems are designed for managing commoid8ty-like products that move quickly, delivering many inventory turns a year and a low transaction cost.

2. Identify one of your favorite grocery stores. What attracts you to it? Can you think of anything the store has done to draw your patronage and stop you from buying online? Is there anything further they could do to retain your loyalty?

My personal favorite grocery store has the widest selection of items available in this area and the friendliest, nicest staff of check out people and a wonderful manager who helps me with special requests. The personal service is outstanding and the level of product quality is also very good. The prices are higher than other areas, but it is clear their produce, meat and specialized items areas require lot of gross margin to keep going. It's a great store and one that is definitely worth shopping at due to its exceptional breadth of products.