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What Amazon’s push into online groceries is really about

Amazon is making a move into the online grocery business, offering delivery service to the Los Angeles area as early as this week, according to a Reuters report. Dubbed AmazonFresh, the service could be available in 20 other urban areas, including some outside the US, by next year.

Amazon had been testing out food deliveries in the Seattle area, where it is based, since 2007. Fresh produce is one of the few items that Amazon doesn’t currently sell and could be a new source of growth for the company.

That’s bad news for firms like Wal-Mart, which is already far behind Amazon in its online sales strategy. Amazon will also square off against new competitors in the grocery world, like Whole Foods Market, Safeway, and Peapod. In New York City, FreshDirect is a major player.

Selling fresh fruits and vegetables online is a difficult business that comes with expensive costs, like fuel-hungry refrigerated trucks, which leads to small margins. But Amazon’s move into online groceries isn’t really about making money. Instead, it is seen as a way of making Amazon’s burgeoning same-day delivery service more cost efficient.

Amazon also has the logistical expertise that could help in online groceries where others have failed. And offering fresh produce is one area that Amazon’s competitors in other sectors, like technology, would probably not venture. Amazon would seal its place in the consumer mind as the go to place for everything.

The e-commerce giant is also looking to expand in other areas, like smartphones and a set-top box for your television, putting it in competition with Apple and Google. Amazon is also the leader in public cloud computing, with others like IBM and Microsoft trying to catch up. Today, Amazon announced it was paying Viacom to license its popular children’s programming like Dora the Explorer.

In the not-so-distant future, you could be using your Amazon phone to order groceries online from AmazonFresh before you watch a movie ordered through Amazon Prime using an Amazon set-top box for your TV, which you purchased on Amazon.

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