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Amazon.com Inc. Expands Prime Now and Targets Alcohol Delivery

By Chris Kuiper, CFA - Sep 3, 2015 at 6:10PM

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Latest efforts from the e-commerce leader provide further evidence of its incredible infrastructure.

If anyone still needed a reason to join Amazon Prime, perhaps free two-hour booze delivery will be enough to sell them on the membership. Amazon.com (AMZN 3.66%) expanded its Prime Now one and two-hour delivery service of household goods to its hometown of Seattle on Aug. 25. The announcement shows that the company continues to increase the value-add of the Prime membership, deepen its competitive moat, and even take on the array of local alcohol delivery apps and services.

Party emergency? There's an app for that
Prime Now is the app-only service that allows members to order from among "tens of thousands" of household items and receive free delivery within two hours or pay $7.99 for one-hour turnaround. The service launched in Manhattan last year, and it has since been rolled out to Miami, Dallas, Atlanta, Austin, and Baltimore.

However, the alcohol delivery service is new. Not only will the beer be delivered cold (along with other items such as ice cream), but the service will deliver from 8 a.m. to midnight every day, including Sundays.

Competitive moat grows wider
The continued rollout of Prime Now, along with the addition of alcohol delivery, should have some competitors' martini glasses rattling with fear. There are many alcohol delivery apps already on the market, including Drizzly, Minibar, Ultra, Swill, Saucey, and Drinkfly. But these apps largely operate in just one or a small handful of cities. Many of them also rely on partnering with local beverage stores to deliver the products.

Amazon has the infrastructure to eventually roll out Prime Now to hundreds of cities if consumer demand proves robust. Its scale will allow it to stock an incredible number of offerings without relying on partnerships with local stores. As Amazon CFO Brian Olsavsky noted in the first quarter 2015 earnings call, "We'll point out that our operations network that we've been building for the last 20 years helps make Prime Now a viable proposition for us. The scale makes this possible."

The massive distribution network is Amazon's biggest competitive advantage, along with the brand it carries. It also gets Amazon closer to the massive opportunities behind online grocery shopping and delivery, which it has been testing with Amazon Fresh and Amazon Pantry. If successful, we could easily see all of these Prime services rolled together in the future.

So where's my beer?
For those not in the Seattle area or one of the other highly coveted Prime Now zones, when can you expect Prime Now to come to a neighborhood near you? Amazon won't say -- but that could be a good thing.

Amazon is taking a deliberate approach to rolling out the service. Rather than going crazy and making huge capital expenditures on more fulfillment centers, Amazon is making sure there's enough demand for the service and staying power. The instant-delivery business is an area in which many have failed in the past.

Amazon is likely to continue to undertake the rollout carefully. On the recent second quarter conference call, management was asked why the company wasn't rolling out Prime Now and Fresh faster. Management responded that it's already "moving quick," although "we would always like to move quicker, obviously."

This isn't Amazon's first logistical experiment, so it shouldn't be an insurmountable challenge. If anything, investors should applaud the development and raise their glass to Amazon's competitive positioning and unceasing commitment to the customer and convenience.

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