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Is Amazon Getting Into the Restaurant Delivery Business?

By Daniel B. Kline - Sep 1, 2015 at 8:24AM

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The company is dipping a toe into the market in a potential sign of big things to come.

It's hard to remember, but at one time, (AMZN 0.19%) was just an online bookstore that shipped items on no special schedule.

Since those humble, early days, the online retailer has not only expanded it product offerings to pretty much everything you can imagine, it has refined its shipping operations significantly. Amazon now offers free shipping to its Prime members and to people who order over $35 worth of merchandise. It can also handle next-day shipping, routinely delivers items on Sunday in many markets, and has same-day delivery in select regions.

From books, electronics, and other hard goods, the retailer has even expanded to groceries and does not appear willing to stop there. Amazon is taking things a step further as it prepares to deliver your lunch.

What is Amazon doing?
The online retail giant has very quietly begun testing restaurant delivery in the Seattle area, according to GeekWire. The small-scale test is being conducted through the company's Prime Now service, which offers two-hour delivery for Prime members on select items.

Amazon is actually using its own employees to test the meal delivery service, the technology news site reported. It has let staff members "order meals from restaurants in conjunction with the new Prime Now delivery service in Seattle, according to delivery drivers and others with knowledge of the initiative," the site explained.

This is the retailer barely dipping its toe in the water, but restaurant delivery is a potentially huge market with no major player dominating the space.

Amazon Prime Now is being introduced in select markets. Source: Amazon

Is this a good thing?
Going into restaurant delivery seems logical and a little odd for Amazon. It does, in theory, create more volume for its drivers shipping other Prime Now orders. Once you're sending a vehicle out, it does make sense for it to makes as many stops as possible.

The challenge, however, is that delivering food is not the same as delivering other items. If someone orders groceries from Prime Now, he or she likely does not care when they are delivered within the two-hour shipping window. Meals are another thing entirely as someone who orders lunch or dinner generally wants it within the hour.

Having to hit those times likely negates some of the company's ability to tack restaurant delivery on with existing shipments. It's possible, in theory, if Amazon hits a critical mass of orders going out, but it's a significant logistical headache.

The company is going slow
Restaurant delivery, much like grocery delivery, has been one of those internet holy grails that has seen many players enter the market with much fanfare only to fail spectacularly. The challenge, aside from logistics, comes from the narrow margins.

Customers will only pay so much for the convenience of delivery, and restaurants can only kick in so much before the deal no longer makes business sense for them. Add in the cost of the actual drivers and vehicles, and it's hard to make money with a third-party meal delivery service.

Hard, however, is not impossible, and Amazon can theoretically leverage its existing (or soon to exist) Prime Now traffic. That presents all sorts of challenges, but the online retailer has been able to solve similar problems throughout its existence.

Going slow is the sensible way here, and the retail giant has shown a willingness to take a steady, measured approach to solving problems. It has advanced its grocery business gradually and can now add meal delivery to its vast portfolio of offerings.

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