What AmazonFresh Should Teach Entrepreneurs Targeting Brick-and-Mortar

7 Jun

I read a great analysis of AmazonFresh recently. The author astutely pointed out that AmazonFresh is rarely talked about – which is something of an oddity in the world of technology.

By comparison, the author explains, AmazonPrime was started in 2005, and Amazon AWS in 2006. Both have become billion-dollar business units on their own and are frequently courted in the press.

But AmazonFresh continues to languish. Nine years in, Amazon has barely penetrated the US grocery market, with 0.8% of representative marketshare. What’s the issue?

For anyone who has lived in brick and mortar, we already know the answer: there’s no gas pedal to step on. The laws of scale simply do not apply here. AmazonPrime is a last-mile service that leverages existing parcel delivery companies tied to Amazon’s ecommerce engine. AWS is a cloud service that well-educated software engineers and IT managers know they need.

Contrast this with AmazonFresh, a company that must transact with brick and mortar establishments, establish its own delivery service for perishables, and keep goods fresh. Three strikes, you’re out!

Brick and mortar is a long slog. The incumbents are hard to deal with and as a result have inexplicably long sales cycles to even do what’s best for their own business. Sure, it’s great news if you make it: the moat is wide and deep. But it comes at a massive opportunity cost, and it’s why few investors will back companies serving brick and mortar operators. I wouldn’t be surprised if Amazon abandons Fresh to work on its next AWS – where it can make more money, faster.