Internet retailer Amazon.com apparently is ready to try its local
grocery-delivery service in California after testing it in the Seattle market
for more than five years.
A report Tuesday by Reuters, citing anonymous sources, says Amazon could expand its Fresh grocery-delivery service to Los Angeles as soon as this week and San Francisco later this year.
Seattle-based Amazon has struggled to turn a profit from Fresh since 2007, when it began as a limited test on Mercer Island, but there have been some hints of a recent breakthrough.
Chief Executive Jeff Bezos, speaking at Amazon's annual shareholders meeting last month, said Fresh had "made progress on the economics over the past year." What's more, a stock analyst on Amazon's quarterly earnings call in late April mentioned that refrigeration had been added to the company's California warehouses.
Amazon did not respond to an email seeking comment Tuesday. The Fresh website also gave no indication of an expansion, listing availability only in the Seattle area.
Analysts say an ongoing expansion of Amazon's distribution network paves the way for a broad-based rollout of Fresh. Amazon has opened nearly 20 new distribution centers nationwide since 2010, bringing its U.S. total to more than 40.
At the same time, Amazon now collects sales taxes in nine states, including California, up from five a year ago, removing a potential barrier to the wide deployment of grocery-delivery trucks.
Under a 1992 U.S. Supreme Court ruling, Internet retailers don't have to collect a state's sales tax unless they have a local physical presence. Amazon, after years of minimizing its physical footprint, now supports federal online sales-tax legislation.
Internet grocery analyst Bill Bishop said Fresh ultimately could be headed to as many as 40 U.S. markets, depending on how things go in California.
"It's going to be a two-step process. The first two California markets will tell them whether they can roll it out elsewhere," said Bishop, chief architect at consultancy Brick Meets Click.
"I think Seattle's too close to home, and it's been played around with too much," he added. "They really need a clean-slate test, and they'll get that with this."
A Fresh expansion would pose a threat to brick-and-mortar grocers, including Walmart and Safeway, but it's no guarantee that Amazon will become a dominant player in California's grocery market, Bishop said. Despite the popularity of e-commerce, many shoppers remain reluctant to pay more for the convenience of buying groceries online, he said.
"The demand for online ordering and delivery to home is a relatively small part of the market. It's under 5 percent," he said. "At the end of the day, a lot of it has to do with people's willingness to pay extra for services they've historically performed themselves."
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