Amazonfresh: Rekidling the Online Grocery Market

For the exclusive use of O. Camacho, 2015.

9 -6 1 5 -0 1 3

REV: AUGUST 15, 2014

RORY MCDONALD

CLAYTON CHRISTENSEN

ROBIN YANG

TY HOLLINGSWORTH

AmazonFresh: Rekindling the Online Grocery Market

We believe that a fundamental measure of our success will be the shareholder value we create over the long

term. . . . We will make bold rather than timid investment decisions where we see a sufficient probability of

gaining market leadership advantages. Some of these investments will pay off, others will not, and we will have

learned another valuable lesson in either case.

— Jeff Bezos, 1997 Letter to Shareholders

As Fishmonger Ryan Reese skillfully filleted a fresh rainbow trout at Seattle’s Pike Place Market

one morning in late 2012, the usual mix of tourists and locals gathered to admire his prowess. The

iconic downtown market’s appealing array of fresh and specialty foods drew daily crowds eager to

admire its vendors' showmanship and buy their wares. But the trout wasn't for any of them. Ryan's

customer was miles away on Mercer Island. Within hours AmazonFresh, the grocery subsidiary of

Amazon.com, would deliver the fish, which she'd ordered online, right to her doorstep.1

AmazonFresh had spent five years testing and refining its business model since its launch in

August 2007. The challenges were numerous; no other online grocer had yet succeeded on a national

scale. Amazon typically allowed new businesses only a short time to achieve profitability before

shutting down failed attempts. But CEO Jeff Bezos and his management team also made allowances

for enterprises they believed would succeed in the long term. Known for being “stubborn on vision

and flexible on details,” Amazon was also famously resistant to Wall Street’s quarterly earnings

pressures.2

Grocery was an especially attractive sector because it was both the largest single U.S. retail

category and one of the few that had not yet migrated online. (In 2012 less than 2 percent of...