Amazon's plan to open grocery stores actually makes a lot of sense

Amazon is planning to open mini grocery stores and online pick-up locations, further expanding its brick-and-mortar presence, according to the Wall Street Journal’s Greg Bensinger and Laura Stevens.

The report says the grocery stores will sell perishable items like milk and produce, while the pick-up locations will allow for a quicker check-out of products already ordered through Amazon’s online site.

The new service will only be available to Amazon Fresh members, a premium membership service that costs $15 per month, only available to Prime members (which costs an additional $99 a year or $10.99 a month), the WSJ says.

The move would be Amazon’s latest in expanding into the physical retail territory. Last year, Amazon opened its first physical bookstore in Seattle, and has launched in a number of other cities including San Diego, Portland, and Chicago this year. As Business Insider previously reported, Amazon is also planning to open up to 100 pop-up stores in US shopping malls over the next year to showcase its hardware devices.

Why would Amazon want to get into the grocery business?

Cowen & Co. analyst John Blackledge narrows it down to two simple reasons in a note published Tuesday:

  1. The grocery market is huge: $800 billion total market size; $33 billion online grocery market size
  2. High purchase frequency: People do grocery shopping 4 to 5 times a month on average, which means Amazon will see more shoppers

On top of that, Blackledge argues there’s a big generational shift in purchasing behaviour where younger customers prefer shopping online for grocery products. And with huge improvements across all online grocery shopping platforms, the trend will only continue, he writes.

“We are encouraged by Amazon’s growing footprint in this category, which we see as ripe for potential disruption given younger demos increasingly purchasing food & beverage grocery items via digital channels,” Blackledge writes.

Blackledge also notes that Prime customers have a higher rate of buying grocery online, a positive sign given that Prime users tend to spend significantly more than non-Prime users.

You can read the full WSJ article here>>

Disclosure: Jeff Bezos is an investor in Business Insider through hispersonal investment company Bezos Expeditions.

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