Can Groupon Basics Compete With Amazon Prime?

The group of companies attempting to steal sales from traditional supermarkets via online bulk delivery services has another member -- Groupon  (NASDAQ: GRPN  ) has joined the fray with Groupon Basics. The new service has launched around the country offering customers the ability to buy large quantities of more than 100 household, personal care, and health and wellness items at presumably lower prices than purchasing them in the traditional "as needed" fashion.

Groupon's offering comes a week after Amazon  (NASDAQ: AMZN  ) announced a similar product -- Prime Pantry, which lets customers in the continental United States order select household products they might otherwise get from a grocery store. 

Amazon allows for more quantity choice and has a longer list of available items. Groupon Basics (also limited to the continental United States) revolves around forcing large quantity buys. The two companies also price delivery differently -- Groupon offers free shipping on all orders of $24.99 or higher and free returns, and Amazon lets Prime subscribers pay a $5.99 flat fee (plus the price of the items) to fill a 4-cubic-foot box with up to 45 pounds of product.

At launch anyone who places an order through Groupon Basics receives a 5% credit in Groupon Bucks toward a future purchase on the site. Groupon explained its plan in a press release.

"We're putting the bulk buying power of Groupon to work for our customers, helping them save on serious quantities of the things they buy and use every day -- all from the convenience of their home," said Aaron Cooper, senior vice president of Groupon Goods. "By adding this service to our marketplace, we're providing shoppers with great value and yet another reason to always check Groupon first."

It's harder to see Basics as a logical extension of the Groupon brand than Amazon's strategy, but the company does already maintain warehouses and ships to customers for its Groupon Goods service, which offers deals on physical goods across a broad range of categories.

The potential market is huge

While it might not be a great business fit, it's not hard to see why the company (or Amazon) would want to attempt to cut off a slice of the supermarket business.

With total supermarket sales rising 3.1% in 2013 (compared with 3.8% in 2012) and pushing total sales over the $600 billion mark, according to Progressive Grocer, the dollars involved make the market very enticing.

Warehouse clubs like Wal-Mart's  (NYSE: WMT  ) Sam's Club and Costco  (NASDAQ: COST  ) have always competed with traditional supermarkets by offering bulk goods at what are marketed as (but aren't always) better prices. The twist that Groupon and Amazon are offering is that not only will you save money, you won't have to lug as much from the grocery store. The two companies are also competing with niche bulk delivery sites including Dollar Shave Club, which has grown specifically by taking a high-priced necessity and selling it in bulk(ish) quantities cheaply.

Do you trust Groupon?

When Amazon launches a new product it benefits from the strong relationship and high level of trust it has with its user base. The retailer was the top online store on the annual American Customer Satisfaction Index, improving its customer satisfaction during the 2013 holiday season by 4% for a total score of 88. Groupon has not been rated by ACSI.

And while It's unlikely Groupon has the level of customer trust and loyalty Amazon has, the company did show a 9% increase in active customers in 2013 and has had 70 million people download its app, according to the company's 2013 fact sheet. The company also has a user base that spends 45% more online than the average online consumer in the United States, according to the 2013 North American Technographics Retail Online Benchmark Recontact Survey.

It's a more logical assumption that Amazon customers will embrace Prime Pantry because it's just a new take on how to buy items it already sells, while Groupon is breaking into a new market niche. Still Groupon has a large user base that is comfortable buying from the site, so it's not a big leap to assume some of that audience will be willing to try Basics.

Will people buy?

The real question is whether the promise of a better price and the convenience of having the items delivered will appeal to enough customers to get them to change how they shop. Warehouse clubs have been around for years and have an audience (a large one), but not everybody shops there because some people don't want to buy a pallet of breakfast cereal at a time.

Groupon may be offering bulk deals that are a real value, but it has to convince customers they want to front the money to buy their shampoo or deodorant for the whole year because in the long run they will spend less cash. Groupon also has the task of convincing its audience to buy a different type of goods than the deals the company built its brand on.

Both Groupon and Amazon have the potential to carve out a niche market here and steal share from traditional stores, but doing so means convincing customers the savings are real and the convenience does not come with drawbacks.

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