Amazon Prime Now as your new Grocer?

Amazon’s Prime Now has Introduced Fresh Produce

That headline is a bit odd. The biggest online retailer recently introduced their “Prime Now” service where you can have your items delivered in as short as an hour. However, they only recently  added fresh produce and dairy products to their list of available items. This is an extremely weird play by Amazon, but I think it will work for one reason, millennials.

Many of the millennial generation live in urban centers, like Atlanta or New York, and they do not have cars as they don’t really need them in today’s day and age. There are services like Uber who will drive you anywhere you need to go for an extremely low price. On top of that, they even deliver food from your favorite restaurants. The only thing that’s missing is a reliable grocery delivery service.

I am actually one of these millennials. I live in the center of downtown Atlanta and I do not own a vehicle. Sadly, the closest grocery store is two miles away so I can either just eat out all of the time or pick from a ride share service to drive me to and from the grocery store. This is where the major problem arises, because I absolutely love cooking and hate that I don’t have access to fresh ingredients without spending an arm and a leg. I’ve looked into services such as Shipt, but they charge a delivery fee + about a 15% premium on all of your items, and that’s just ridiculous. So I’ve been waiting for a decent alternative, and now I’ve found one. So, what does all of this mean for Amazon as a potential investment?

Well, this is a huge money making opportunity for Amazon. Let’s just strip it down to the brass tacks and take a look at the math surrounding this idea that Amazon might be a good investment. Let’s set some base numbers to work with –

   –According to the US census there are roughly 80 million millennials
http://www.pewresearch.org/fact-tank/2016/04/25/millennials-overtake-baby-boomers/
   –According to Goldman Sachs roughly 30% of millennials never intend on purchasing a car
http://www.goldmansachs.com/our-thinking/pages/millennials/
   –There are 54 million prime users
http://www.nbcnews.com/tech/tech-news/amazon-prime-now-has-54-million-u-s-members-report-n505216
   –Millennials make up 25% of the United States population
   –A single person will spend roughly $1,812/year on groceries
http://www.gallup.com/poll/156416/americans-spend-151-week-food-high-income-180.aspx

Now let’s make a couple assumptions

   On the conservative side, let’s assume Amazon collects the online retailer average of 3.32% of the potential market.
It can be assumed that there are 13.5 million prime members are millennials
It can be assumed that, of those 13.5 million members, 4.05 million don’t own a vehicle.

With those numbers and assumptions we can figure out just how much more revenue Amazon might bring in annually thanks to these immobile millennials.

On the low end (3.32% market capture), all we have to do is take 3.32% of the found market (4.05 million millennial prime users that don’t own a vehicle) and multiply that by the annual cost of groceries for a single person.

(4.05 million*.0332)*$1,812=$243,641,520

At that level, Amazon will add a quarter of a billion dollars annually to their revenue number. This doesn’t increase their revenue number by much as they currently gross $107 billion/year, but they have the potential to be the go to food provider over the next few years for millennials – especially since I was using the most conservative numbers available in my analysis. In reality, Prime members have a 74% chance of converting, while non-prime members have a 13% chance of converting which are leagues above the industry average of 3.32%.

So, should we just discount my analysis since I’m not using Amazon’s exact numbers? No! This new product line has huge potential for Amazon as they begin to speed up delivery times in local markets. As someone who personally uses the Prime Now Pantry for the majority of my grocery shopping it has made my life far easier. How will this new business affect their primary business long term? I believe it will allow them to profitably build a short term delivery system that can be offered to all users and inspire more people to just stay home and shop online.

 

About Aaron G information

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