Amazon's best grocer's expansion move: buy FreshDirect

Amazon will reportedly be ramp operations, grocery stores and expand to San Francisco and Los Angeles. If Amazon want the other side of the United States should get the FreshDirect, which has about a decade of experience, distribution network for such supply, information systems and its own expansion plans.

Reuters reports that AmazonFresh is about to come out from its Seattle-based test market. Amazon has tested online groceries in about five years.

The expansion plan is sensible and much of the coverage if AmazonFresh centers on disturbance. Expansion, however, is not easy. You need distribution, as Amazon has, logistics to keep food cold, tight supply windows which vendor to control and relationships with local suppliers and even local farmers to play better margin organic game.


A good expansion case study would be FreshDirect, a company that is well known in New York and now expands in the Philadelphia area. In New York there are FreshDirect trucks everywhere. Expansion can be tricky because you can't enter a market and screw up. Meanwhile, the food is very local. It is a hurdle rate---in large part because many people who experience of grocery shopping (see Whole Foods)---you have to prove that the quality will be up to snuff with the convenience. Another obstacle is that food shopping just isn't hated as much as toy shopping. In addition, competition in foodstuffs is hard with Wal-Mart with food as a way to upsell.


Given that background, would an acquisition of FreshDirect give Amazon a different coastline to experiment with. the acquisition would be akin to Amazon's purchase of Zappos. Amazon would get distribution, intelligence and leave the brand pretty much alone.

Like Zappos, FreshDirect has built its own system and Amazon can provide the scale and efficiencies. Also worth noting: FreshDirect looking to hire an Executive to improve the system for monitoring and replace content management software. Amazon can help over time dramatically.  Back in 2004 I did a case study on FreshDirect, its SAP system and how it rose from the ashes of Webvan.

A combined Amazon and FreshDirect could cut out a lot of middlemen in the food business operator.