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Amazon and Walmart Duke it Out in Fresh Foods

Is there anything Amazon can’t do? Apparently, the answer is yes. It seems that the company with a software solution for even the most complex delivery schedule, cannot find an efficient way to deliver a gallon of ice cream to your doorstep without a bit of meltage.

You might imagine that a company with a half a trillion (yes, that trillion with a T) market cap and $62 billion in cash, has the resources to tackle any obstacle that comes its way. It has after all transformed itself from an internet bookseller to a company with over $150 billion in annual revenue selling everything from razor blades to area rugs.

But last week the company quietly informed some suburban customers that it is ending service in their neighborhoods of the AmazonFresh grocery delivery program. Several media outlets report customers in some parts of New York, New Jersey, Connecticut, Massachusetts, Virginia, Pennsylvania, Delaware, Maryland, and California have received letters that AmazonFresh is suspended until further notice.

Flexing its Muscle

This disruption is surprising. Amazon has been the genius in the room as far as ironing out the logistical wrinkles with home delivery. I’ve written oodles of articles describing its insatiable desire to control every leg of the journey its packages travel from warehouse to doorstep.

It has gone so far as to acquire a minority holding in airplane leasing company Air Transport Security Group (NSDQ: ATSG) and buying automated robot company Kiva outright. Its football-field sized distribution centers now populate more than 30 states in the U.S. Self-service storage lockers for package return and pick up have been installed in 1,800 spots.

To avoid the consumer disgruntlement that occurred in the holiday 2015 season due to late package deliveries by U.P.S. and FedEx, it announced a new delivery proposal for contract workers. In an “uber-esque” manner, Amazon introduced Amazon Flex. This service employs an army of contract delivery people who work on a flexible schedule, and utilize their own vehicles, to deliver Amazon packages.

Amazon’s ambitions seem to have no end. Its recent $14 billion purchase of Whole Foods illustrates its interest in controlling food distribution. Alas, Amazon may finally have met its match in its goal of farm to door delivery of perishable foods.

A company spokesperson confirmed the stoppage but clarified that the service would remain serving certain areas in big cities such as New York City, Boston, and Chicago.

AmazonFresh launched almost ten years ago in Amazon’s hometown of Seattle. The company took a slow and deliberate path before expanding the service over the next five years. To subscribe to AmazonFresh, customers must first be Amazon Prime members, who pay $99 annually for free delivery of many products. An additional $14.99 monthly fee is charged for food delivery.

Amazon’s pause of its fresh delivery service coincides with Walmart’s October 2017 purchase of Brooklyn-based Parcel, a same-day and last-mile delivery company specializing in perishable and non-perishable delivery to customers in New York City.

The key term here is last-mile. Parcel currently delivers meals and food for many different customers. Walmart is clearly interested in Parcel’s routing algorithms, which help it efficiently pack and deliver perishable goods throughout the city.

Turning on the Jets

Walmart’s purchase of online seller Jet.com in August 2016, is likely sending shivers up Amazon’s spine as Jet branches out into more grocery products.

Since that purchase, Walmart has been shifting more and more products into the home delivery bin via Jet. Prior to Walmart’s purchase Jet abandoned its $50 annual membership fee and switched to free shipping for orders over $35.

Late this summer Jet introduced a fresh option, offering customers perishable and frozen foods in addition to the shelf-stable pantry items which make up the bulk of its merchandise. Reviews have been very positive. It seems that despite coming late to the party, Jet has quickly caught up to Amazon as an expert in perishable delivery.

Of course, neither company promotes quick and easy delivery outside of major metros. The trick for both Amazon and Walmart is how to service the rest of the country, that population that doesn’t live within five miles of a major metropolis.

I’m confident there are more stock plays to capitalize on the insatiable drive of these two giants to dominate perishable delivery anywhere. As both companies explore solutions for delivery to that last mile in sparsely populated areas, some logistics companies will enjoy the benefit.

Profit Catalyst Alert subscribers enjoyed gains in two fabulous logistics stocks this year, but I’m on the hunt for more. Air Transport Services Group (mentioned above), rose 60% in 13 months and Supreme Industries, rocketed 26% in one month when it was acquired by trucker Werner Enterprises (NSDQ: WERN).


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