Amazon plans big expansion of online grocery business – sources

SAN FRANCISCO (Reuters) - Amazon.com Inc is planning a major roll-out of an online grocery business that it has been quietly developing for years, targeting one of the largest retail sectors yet to be upended by e-commerce, according to two people familiar with the situation.

While food is a low-margin business, Amazon could outperform similar online grocery services by delivering orders for higher-margin items like electronics at the same time.

One of the people familiar with AmazonFresh's expansion plans said new warehouses will have refrigerated areas for food, but also space nearby to store up to one million general merchandise products, in some cases.

The company has been testing AmazonFresh in its hometown of Seattle for at least five years, delivering fresh produce such as eggs, strawberries and meat with its own fleet of trucks.

Amazon is now planning to expand its grocery business outside Seattle for the first time, starting with Los Angeles as early as this week and the San Francisco Bay Area later this year, according to the two people who were not authorized to speak publicly.

If those new locations go well, the company may launch AmazonFresh in 20 other urban areas in 2014, including some outside the United States, said one of the people.

Bill Bishop, a prominent supermarket analyst and consultant, said the company was targeting as many as 40 markets, without divulging how he knew of Amazon's plans.

An Amazon spokeswoman did not respond to a request for comment on Tuesday.

Amazon is searching for new, large markets to enter as the company tries to maintain a growth rate that has fuelled a 220 percent surge in its shares over the past five years. The grocery business in the United States, which generated $568 billion (370 billion pounds) in retail sales last year, may be a ripe target.

Amazon's expansion plans are a potential threat to grocery chains such as Kroger Co, Safeway Inc (NYSE: SWY - news) and Whole Foods Market (NasdaqGS: WFM - news) , as well as general-merchandise retailers Wal-Mart Stores Inc and Target Corp (NYSE: TGT - news) , which also sell a lot of groceries.

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Amazon plans big expansion of online grocery business - sources