Piper Jaffray analyst Gene Munster, who rates Amazon shares "overweight" with a $420 price target, believes Amazon Fresh is the retail giant's next big driver to get more people buying their wares from Amazon, considering how large grocery spend in the U.S. is ($718 billion this year, according to Munster). Not only does Amazon get additional revenue from food sales, but Munster believes there are two other big areas of growth for the firm - an addition in general merchandise sales, and getting closer to same day delivery, something Amazon has been experimenting with, particularly with the announcement of its drone delivery system late last year.
Munster notes that Wall Street analysts are expecting Amazon's 2014 revenues to be $90 billion, which leaves ample room for revenue growth if Amazon Fresh really takes off. "In other words, grocery is the massive direct opportunity of Fresh," Munster wrote in the note.
Shares of Amazon were higher in Wednesday trading, gaining 1.5% to $369.54.
By introducing Amazon Fresh, which is available so far in three cities (Seattle, San Francisco and Los Angeles), Munster said Amazon is taking a page out of Target's (TGT) playbook. "This is taking a page out of Targets 'PFresh' concept which began in 2009 and added grocery to smaller Target stores to in part increase the frequency of visits to Target."