Amazon Unveils Prime Pantry Service - Analyst Blog

E-Commerce giant Amazon.com AMZN has unveiled a new service for its Prime members called “Prime Pantry.” Reportedly, the service will be available in 48 nearby states.

The Prime Pantry service would offer an expanded selection of items, in addition to other groceries items such as cleaning supplies, kitchen paper rolls, canned goods like pet food, dry grocery items like cereal and some beverages.

Initially, the service will offer up to 45 pounds of grocery items for a flat rate of $5.99. Customers will be able to see how much of the grocery box has been filled by the items and shop accordingly.

Amazon already runs the “Subscribe and Save,” service which offers discounts to shoppers. Customers receive additional discounts if they shop more than five items in the same month.

Grocery is one of the most difficult sectors to crack, especially when it comes to online shopping as is evident from the now defunct business of Webvan. These endeavors often meet with failure as the operational cost (cost incurred in maintaining infrastructural facilities for delivery on time, warehousing facilities for storage of goods, to name a few) is exorbitant while margins are low. Since grocery items are mostly perishable in nature, it further increases the chances of wastage.

The move comes as Amazon has been expanding its services for its Prime membership program since it increased its prime membership annual fee to $99 from $79 in March to offset rising shipping costs. In addition to free two-day shipping, the Prime service includes free access to Amazon Instant Video. Yesterday, Amazon announced a deal with Time Warner Inc.'s HBO network to extend the archive of television shows and films currently available on its streaming video site, Amazon Prime Instant Video.

Of late, Amazon has been introducing new products, expanding its foothold in all the categories. It recently launched a hardware product named Amazon Dash which can scan product barcodes through the bar-code reader and log orders on the AmazonFresh grocery delivery account. The company is also investing in drones to automate the delivery process. With a view to make its grocery business a success, Amazon has already started investing in warehouses.

Additionally, earlier this month, the company released an Internet video-streaming set-top box named Fire TV. Amazon's Fire TV, supported by Google's Android software and HTML 5, is claimed to be three times as powerful as Apple Inc.'s TV.

We believe these product offerings will help Amazon to improve sales and attract new users.

Currently, Amazon has a Zacks Rank #2 (Buy). Better-ranked stocks in the technology sector include Liberty Ventures LVNTA, which sports a Zacks Rank #1 (Strong Buy), and Facebook Inc. (FB) and IAC/InterActiveCorp. IACI, both with a Zacks Rank #2.