Amazon’s Grocery Business Learns From Webvan That Rapid Growth Is The Enemy Of Fresh

Amazon is moving deeper into at-home grocery delivery with AmazonFresh, which is expanding to L.A. as of last week, and which is set to continue to roll out to further markets over the course of this year and beyond. But it learned to take things slow from Webvan (the name and web presence of which it now own), the famous home grocery delivery flare-out of the 90s, and also to limit delivery areas to only high density urban areas, and to pursue as efficient a warehousing strategy as possible, according to a new Reuters report.

How did Amazon learn those lessons? Well it helped to have the guys who made the mistakes to begin with in the room, for starters. Amazon has four former Webvan executives on its staff, and acquired Kiva Systems last year, a robotics company that was founded to solve some of Webvan’s original problems and answer questions raised during its brief tenure before IPO and collapse in 2001.

While AmazonFresh does potentially offer the chance to disrupt a massive market in a way that could run parallel to how Amazon has already forever changed electronics, home furnishing, clothing, accessory and other retail markets, groceries are a different beast. Margins are low, inventory is infinitely more perishable, and delivering quotidian supplies to an entire market’s worth of grocery shopper is an entirely different type of logistical problem compared with occasionally sending them off a hard drive or t-shirt.

Which is why it has taken AmazonFresh over five years to go from Seattle, to L.A. But now the goal is to cover San Francisco Bay later this year, and then to spread to as many as 20 markets throughout 2014. But the expansion needs not only be city-to-city; a key component of sustainable growth is building up regions within cities to maximize route efficiency, so that plotting customer additions at the level of the neighborhood becomes crucial to successful deployment, the Reuters report says.

Another key ingredient, according to the report, is Kiva. The robotics company that Amazon bought presents an incredible advantage for warehousing, as a robotic workforce can work much more efficiently and quickly than the conveyor belt system which was in place at Webvan, and which broke down completely when just a single element went wrong thanks to its linear nature.

Those factors, combined with Amazon’s massive existing user base, are what the company is betting will help it succeed where Webvan failed. But Amazon also has something that Webvan didn’t necessarily, and that’s massively entrenched brands that have huge existing retail presence, like Walmart, which didn’t really get into groceries in a big way until after Webvan’s collapse, and which is also at least trialling at home delivery. In the U.K., Canada and other locales, other chains are also either trialling or have implemented their own delivery services for groceries, too, which means it’s no longer an uncontested space.

Still, there were online stores before Amazon, too, and we’ve seen how that played out. If indeed Amazon’s five year experiment with AmazonFresh has provided the know-how needed to make online groceries work at scale, the next decade could be one in which everything we know about shopping for food dramatically changes.