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AmazonFresh to Expand into other Cities

Amazon (NASDAQ: AMZN) is reportedly planning an expansion of its AmazonFresh business according to Reuters.

Never heard of AmazonFresh? Unless you live in Seattle this little-known arm of isn’t available to you but that may soon change.

AmazonFresh is part of the online retailer’s attempt to tackle the grocery market. Non-perishable food is easy to ship but in order to truly take market share in the grocery business, companies like Amazon have to have an answer for food that is perishable. Without that answer, consumers have no reason to order online when they can go to their local grocery store and pick up everything at one time.

AmazonFresh is the company’s answer. It has a warehouse in Seattle that allows it to deliver fresh, perishable products like baked goods, fruits, vegetables, and bread to a customer’s door the same or next day. Amazon has a fleet of trucks that deliver daily.

Amazon is planning to expand into California markets like San Francisco and other west coast cities. If sales meet expectations, the company plans to expand into other urban cities across the nation.

But the model doesn’t work well, according to critics. The reason online retailers haven’t been able to solve the problem is because of an industry term called “shrink.” Ordering perishable goods in volume causes much of the product to spoil in warehouses. Further, the product tends to get damaged during delivery.

Roger Davidson, a former grocery executive at Wal-Mart and Supervalu has his doubts. “Will it work? I would bet against it,” Davidson said. “The reasons these businesses have failed in the past have not gone away.

Disclosure: At the time of this writing, Tim Parker had no position in Amazon

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