Amazon to deliver groceries in 20 markets by 2014

Amazon is planning to kick off a major expansion of its AmazonFresh grocery delivery business as early as this week, sources close to the company claim.

The online retailer has been quietly offering the fresh-food delivery service to customers in the Seattle area for years, but Reuters reports that it now plans to launch it in as many as 20 markets by 2014, including some outside the US.

Los Angeles residents will be first to gain access to the service this week, Reuters' anonymous sources claim, followed by the San Francisco Bay Area later in the year. If all goes smoothly with those initial markets, Amazon will continue to expand the service into new regions in the coming year.

In its Seattle incarnation, AmazonFresh offers overnight delivery of meat, produce, dairy, seafood, alcohol, and prepared foods from a variety of local food retailers. The items are delivered via AmazonFresh's own fleet of trucks, and delivery is free for sufficiently large orders. Smaller orders are charged a delivery fee between $7.99 and $9.99.

By expanding its service into new markets, Amazon will be competing head to head with traditional grocery chains such as Kroger, Ralph's, Safeway, and Whole Foods, some of which already offer their own grocery delivery services.

In addition, mega-retailers such as Target and Walmart offer groceries at some locations, and Walmart has been testing a grocery-delivery service in a number of cities in the San Francisco Bay Area and nearby Peninsula.

Analysts reckon Amazon may be hoping to outmaneuver such competitors by bundling grocery delivery – which is typically a low-margin business, owing to spoilage and other factors – with deliveries of more lucrative, big-ticket items, such as electronics.

By using the grocery business to underwrite an expansion of its delivery-truck fleet, Amazon may also be planning to make an end run around shippers such as UPS and the US Postal Service, which currently deliver most of its online orders.

But expanding Amazon's grocery business won't be easy and it won't happen overnight. New warehouses will have to be built with refrigerated areas for storing food, Reuters' sources say, and earlier online grocery delivery services, such as Peapod, have struggled to turn a profit.

Still, the grocery business brought in $568bn in sales in the last year, so there's little wonder Amazon would like a piece of it.

Amazon representatives did not immediately respond to The Register's request for comment. ®