Amazon Enters the Grocery Business

April 18, 2006 — -- Say you're browsing through Amazon looking for the perfect book to wile away the hours, and suddenly you're seized by a serious case of the munchies. Time to head out to the grocery store? Not necessarily.

Just click on Amazon's new offering: Gourmet Food.

Today, to accompany your appetite for Proust, Amazon presents Bear Naked Peak Protein All-Natural Granola. A case of six 12-ounce bags is marked down from $29.94 to $20.63, to boot. Granola not your favorite? One little click and a 16-ounce pouch of the Original Golden Valley Natural Beef Jerky can be winging your way -- only 13 bucks.

Amazon, which made its name selling books and records, is offering 84 pages of food -- 2,000 basic, packaged products. The choices range from coconut water to energy bars, from popcorn to peanut butter, and all the way down to sardines.

It's offering a wealth of health. The virtual "shelves" are stocked with recommended remedies for allergies, coughs and colds. You can get contraceptives, too, all courtesy of Amazon.

So what's going on?

"We look on this as a drugstore, and you are going to find food items in a drugstore," Amazon spokeswoman Tracy Ogden told the Financial Times this week.

By adding food to its menu, Amazon is jumping into an online market already populated by competitors Costco and Wal-Mart. It is expected, however, to increase the competitive pressure because it offers so many other things. Indeed, it is further evidence that Amazon intends to be the dominant one-stop online shopping destination for practically anything short of perishables.

Because Amazon is buying literally tons of stuff from wholesalers, it can negotiate lower bulk purchase prices and pass the savings on to customers by keeping retail prices low -- undermining its competitors in the process.