Amazon (AMZN) Could Start Delivering Groceries To NYC In 2014: Analyst

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Amazon Fresh
Amazon Fresh delivery vans are parked at an Amazon Fresh warehouse in California, June 14, 2013.

This story was updated on August 9, 2013.

Retail giant Amazon.com Inc. (NASDAQ:AMZN) could start delivering groceries in New York City by 2014, if certain recent real estate moves betray their intentions in that field, according to a research note from SunTrust Robinson Humphrey released Tuesday.

Amazon is planning to expand into a warehouse complex in New Jersey, within 50 miles of the city and where the previous tenant was C&S Wholesale Grocers, Inc., wrote analyst Robert Peck, according to Business Insider.

“We believe, based on our research, that a developer partner of Amazon has purchased ~1m square feet of warehouse space in a prime NJ location,” wrote Peck.

One 401,000-square-foot complex has refrigeration, and is vacant. Peck believes Amazon will move in and use the space as its center for Amazon Fresh, its grocery delivery business, in the New York metropolitan area.

AmazonFresh is already active in greater Seattle, where it offers delivery of groceries and alcohol. It has been in place as a pilot project for five years now, Peck notes. 

Reuters reported earlier in June that Amazon is planning a major push into online groceries, citing sources close to the matter.

Los Angeles and San Francisco are two other areas targeted by the company, which has already set up shop in Los Angeles. 

Part of the strategy is to deliver electronics and other goods at the same time as groceries, a feature Amazon already is promoting in Los Angeles.

Bill Bishop, a retail and supermarket retail specialist with Brick Meets Click, told International Business Times that he was cautious about believing that AmazonFresh is really setting up shop near New York.

“It’s too early to say anything with confidence because they’ve only really taken the concept outside of Seattle … for three months,” he told IBTimes. “I can’t imagine that they will have proofed the business model in that short period of time.” 

But New York has to be “high on their list as a place where their model would work, because it is enabled by that population density,” he continued.

It’s unclear if AmazonFresh in Seattle has been profitable over the years, though, because Amazon doesn’t disclose financial results for that part of its business.

Turning profits on online groceries is tricky, said Bishop, because they are high-density but low-value goods.  

In Peck’s view, however, Amazon has now figured out a successful business model for online grocery shopping, which is why it is expanding to New York.

Bishop notes that Amazon is spending hugely on infrastructure right now in any event, rolling out distribution centers all across the country, so the warehouse maneuvers alone don't imply much. But he admits that the refrigeration capacity of this potential new warehouse is “definitely interesting.”

According to a draft research report by Bishop’s firm, based on a survey of 23,000 households, about 4 percent of U.S. households buy groceries online, significantly higher than the general industry perception of 1 to 2 percent.

About 13 percent of households bought at least one grocery item online within the past 30 days, according to the research, due for publication within two months.

An Amazon spokesman declined to comment to IBTimes. 

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