Germany’s second-biggest supermarket REWE has been investing a lot of money in grocery e-commerce and even tough it doesn’t expect to make profit any time soon, it supports for Amazon.com, Inc (NASDAQ:AMZN) to continue to expand its food delivery service, as reported on Reuters.
AmazonFresh, Amazon.com, Inc (NASDAQ:AMZN)’s home grocery delivery service started in 2007 in a Seattle suburb and since then it has been expanding across the Seattle area. Ever since 2013, the food delivery service has expanded at a rapid pace and its now available in larger cities such as Los Angeles, San Francisco, San Diego, Brooklyn and Philadelphia.
REWE, is a cooperative that has 15,000 store across all Europe and is the second-largest supermarket in Germany. The grocery e-commerce market has been slow at taking off because of the high density of food stores and also, the dominant discounters have little incentive to push loss-making deliveries.
“We know that we will still not work profitably for several years, but it is not blowing money,” REWE Chief Executive Alain Caparros told Reuters in an interview. “The customer is changing. They want to have it easy and we have to prepare ourselves for that. The online customer is our opportunity to become the number one in Germany. The train is leaving the station and I want to be on it.”
Amazon.com, Inc (NASDAQ:AMZN) has already stated that it has plans to keep expanding its services and launch AmazonFresh grocery deliver service into Germany, that is the second-biggest market after the United States. A timetable for this launch was not given.
A.T. Kearney, the global management consulting firm expects that e-commerce will account for 3% of Germany’s grocery market by 2020. Mirko Warschun, a partner of the firm is expecting that most of this growth will be captured by established retailers.
“In food retail, the question of volume and scale advantage and negotiating power in category management and buying are decisive,” Mirko Warschun stated. “It will tend to be the traditional players who will want to tap the market for themselves.”
The German customers are generally tech-savvy but they seem to be obsessed with food pricing and there is also a hard discounter on almost every street corner. So, Amazon.com in Germany would have to create huge economics of scale and a very profitable product mix to compensate the very thin local retail margins in order for AmazonFresh to succeed.
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