NEW YORK (TheStreet) -- Rumor mills are working overtime that a top priority for Jeff Bezos, CEO of Amazon.com (AMZN) , is grabbing a big piece of the groceries market and that, in his usual style, there already are signs he is committed to cut prices to gain market share for AmazonFresh, an initiative that delivers groceries to consumers homes in parts of Washington State, Los Angeles, and San Francisco. AmazonFresh is slated for broader rollout to many more cities in 2015, said several analysts.
That news is worrisome enough for some that in a mid-November call with analysts, Wal-Mart (WMT) CEO Greg Foran threw down a gauntlet to protect his company’s status as the nation’s largest grocer. Store managers are authorized to price match Amazon and other online merchants, said Foran.
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Does that mean Wal-Mart is at war with Amazon? Maybe not. The two companies, multiple analysts said, pursue dramatically different customers.
The bigger, more pressing question is: Can Amazon win meaningful share in the grocery market?
First, a related question: Why does Amazon want into groceries in the first place? It’s a notoriously low-margin business. But what it has going for it is what retail analysts call frequency. A customer may buy a book a month at Amazon, but a grocery shopper buys milk and eggs and cheese pretty much weekly, often several times a week. Those repeat visits are what unlock profits because, the thinking goes, the customer who logs in to buy milk may also buy a high margin smartwatch or MP3.
This strategy already works at Wal-Mart, where roughly half the sales are in groceries, said Brian Yarbrough, a senior analyst with Edward Jones. But every visit for eggs is an opportunity to sell more profitable items, from car batteries through tires and winter coats.
One fact: Many are watching the online grocery market. Said Carrie Bienkowski, CMO at home delivery pioneer Peapod, a wholly owned subsidiary of big Dutch grocer Ahold (AHONY) (Stop & Shop and Giant in the U.S.), the online market today is perhaps 1% to 2% of total U.S. grocery sales “but is growing faster than anything else.”
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