At launch, the service will only be available to New Yorkers who are members of Amazon's Prime program, which costs $99 a year and includes free two-day delivery on a huge assortment of Amazon products as well as access to a growing catalogue of streaming TV shows and movies. These customers won't pay any extra delivery fees for Amazon Fresh orders through the end of 2014, but will have to upgrade to a $299 membership program called Prime Fresh if they want to continue using the service in 2015.
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Up until now, Amazon Fresh was only available in Seattle and several major metro areas in California. But the New York City launch is the latest sign that Amazon is dead serious about becoming a legitimate player in the grocery industry. The grocery business is one of the few consumer markets Amazon hasn't yet cracked, but it could serve as a pathway to future growth as sales of other consumer categories plateau.
It will not be easy. In New York City, Amazon will compete against local online grocer Fresh Direct — which sources say generates as much as $500 million in annual sales — and well-funded startups like Instacart, which recently inked a partnership with Whole Foods. Google also operates a same-day delivery business in New York City, though it doesn't sell perishable foods like milk, meats, fish and produce like Amazon Fresh does. Some traditional grocers offer delivery as well.
Fifteen years ago, a wave of Internet 1.0 companies like Kozmo and Webvan offered popular same-day delivery services, before crashing and burning during the dot-com bust. But the popularity of mobile apps today and the rise of Uber-like workforces have reignited interest in the area. Amazon takes a relatively old-school approach, buying up groceries in bulk and storing them in warehouses around the country. It also partners with some local restaurants and food purveyors to offer regional specialities. Amazon also recently began working with the U.S. Postal Service to help deliver its groceries.
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While the grocery business often operates with low profit margins, Amazon sees it as a way to help increase the frequency of purchases among its best customers. That could, in turn, help the company expand its same-day delivery efforts for higher-margin goods and boost profit margins.
Sources previously told Re/code the company is storing Amazon Fresh food in a new warehouse in Avenel, New Jersey, which sits a little more than 20 miles southwest of Park Slope.
—By Jason Del Rey, Re/code.net.
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