Amazon is already taking a substantial bite out of the retail world, commanding as much as 11 percent of total retail sales in some markets, according to Forbes. In fact, Amazon’s sales now total more than the next 12 internet retailers’ sales combined. Apparently, even adding e-commerce transactions to a retail website doesn’t help retailers compete with the online giant. Now, an entirely new group is concerned about the growth of Amazon: grocery stores. As a story by The Wall Street Journal makes light of a three-year-old plan in which Amazon is operating mini-fulfillment centers directly from established Proctor & Gamble distribution centers, selling everything from baby diapers to soap products.
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Along with stereo equipment, kitchen wares, clothing, and computers, consumers can now order grocery items from Amazon. By operating within an established distribution center, Amazon bypasses the costs associated with operating additional distribution centers, as well as the costs to transport goods produced by Proctor & Gamble to their own warehouse, store it, and then ship it to customers. This cost savings is enough to motivate customers to buy P&G products online, instead of visiting their local supermarkets.
Competitor Wal-Mart is toying with tests of a new same day delivery system, including grocery items. However, Amazon is already up and running with their program, and it is possible that Amazon has similar arrangements with manufacturers other than P&G, although that is not yet clear. Amazon’s mini-fulfillment centers are currently operating in seven P&G distribution centers around the globe, including facilities in Germany and Japan.
Additionally, Amazon is establishing smaller, local distribution centers in heavily populated cities and making deliveries with their own trucks to bypass the costs and liabilities associated with third-party carriers. Still, the expenses associated with setting up these programs is costly, and Amazon has spent more than they earned for the past three fiscal quarters. Grocers probably shouldn’t roll up the sidewalks until it is clear that Amazon’s new endeavors are going to return a profit over the long run. [/show_to]