Amazon.com Inc.’s AMZN Prime membership is getting bigger and better in the U.S.
The one-hour delivery service, Prime Now, has added wine, beer and other liquor products under its expanded service in Columbus and Cincinnati.
Its inventory now includes hundreds of alcohol-related products from popular brand names such as Chateau Ste. Michelle, Bud Light and Veuve Clicquot. It will also have on offer local alcohols like Great Lakes Brewing Company, Rhinegeist and MadTree Brewing.
This extension will definitely attract more customers to the $99/year Amazon Prime program, which is a significant revenue source for the company. Given that online alcohol beverage sales are estimated to grow at 4.7% annually through 2021 to $772.3 million, Amazon is set to gain significantly.
Coming to the price performance, over the past one year, shares of Amazon outperformed the Zacks categorized Electronic Commerce industry. While the industry gained 39.51%, the stock returned 48.44%.
Amazon Prime Now
In Dec 2014, Amazon rolled out the one-hour delivery service in a limited area in Manhattan. Amazon Prime Now delivers household items, and has added alcoholic beverage products for Columbus and Cincinnati customers, among others. Prime Now offers two-hour delivery for free and charges $7.99 for one-hour deliveries. All Prime Now items can be browsed and purchased through a dedicated app.
$7.99 might seem a shade steep, if only a few items are ordered. Nevertheless, Amazon offers substantial discounts on these items. So, customers can make up for the delivery charges. Also, there is a convenience cost that comes into play.
How it Works?
Amazon Prime subscribers need to go to the Prime Now app and select the postal code of their area. They will be directed to a list of participating brand names. Customers can then select the wine or beer of their choice and place an order. Additionally, the app enables users to track the delivery of their order in real time.
Customers can expect delivery at their doorstep within an hour or less.
It is important to understand the nature of Amazon’s core business. It is primarily an online retailer and competes with the likes of eBay EBAY and Alibaba BABA. This kind of business has a very low barrier to entry. It is cheaper to set up and attracts a lot of competition. Online retailers also face competition from brick and mortar stores like Wal-Mart WMT.
Therefore, carving a niche in this business requires a lot of marketing, an excellent customer-service model and a rational pricing strategy. Dealing with all three and getting it right to maximize profits requires a lot of effort.
To be a formidable player in this space, Amazon needs to consistently offer excellent services.
Prime Now will be part of an enhanced delivery strategy — an important growth driver for Amazon.
As the perks of Prime members increase, subscription rises, expanding the operating margins of the company in turn.
At present, Amazon carries a Zacks Rank #5 (Strong Sell). You can see the complete list of today’s Zacks #1 Rank stocks here.
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