The Amazon Fresh grocery delivery service is one of the longest trial runs in technology history, rivaling the Gmail beta in duration. But more than five years after launching the service in the Seattle region, the team behind Amazon Fresh is making headway on the business model, Jeff Bezos assured shareholders at the company’s annual meeting.
“They have made progress on the economics over the last year,” said the Amazon CEO in response to a question during the meeting Thursday morning at Seattle Center. “They’ve been doing a lot of experiments and trying to get the right mixture of customer experience and economics. I’m optimistic that the team is making good progress.”
This economic challenge of grocery delivery has been around for a while, and we’ve witnessed it first-hand, dating back to the days of HomeGrocer during the dot-com boom. If anyone can make it work, it would be Amazon, with its tolerance for thin profit margins.
For now, at least, there’s no official word on the possible expansion of Amazon Fresh to other parts of the country. But there have been a series of clues that something is in the works — most recently the report that Amazon has been installing refrigeration systems at more of its distribution centers across the nation, presumably to support a wider grocery rollout.
Bezos didn’t go into any further detail on the experiments being conducted by the Amazon Fresh team, but based on my experience as a customer, it seems like many of the tests involve what economists call the price elasticity of demand — raising prices to see how much the changes affect the quantity ordered by customers as a group.
As an example, here’s the Fred Meyer price comparison that I conducted last month, showing prices about 14 percent higher on average at Amazon Fresh on this selection of products, before delivery fees.
The service is certainly more convenient than driving to the store, and many people are willing to pay extra for that convenience. At the very least, the duration of the Amazon Fresh program in Seattle is a testament to Amazon’s willingness to take the long view.
