Has Amazon triggered a logistics race to the bottom?
Twenty dollars. That’s how much, Jet.com, the company Walmart acquired in August 2016, is estimated to have lost on every fresh food delivery in New York City, which explains why it is closing down the service.
In a business with tight margins, such as large-scale distribution, just the idea of losing $20 on every order sounds absolutely insane, if not suicidal. What led Jet.com and its parent company, Walmart, to try to run such a service for years under such conditions? The answer is very simple: the competition. In distribution, it is hard to change customers’ habits, so it’s worth investing in trying to win their loyalty.
In New York, the fight between FreshDirect or AmazonFresh is bare knuckle stuff: in the same period Jet.com has taken to realize the impossibility of the task, AmazonFresh, hoping to stimulate growth, has dropped the $14.99 monthly supplement it had charged for home delivery, integrated its own logistics and has even announced it is going into competition with itself by opening another network of food stores.
Is Amazon invincible? Does it have some secret weapon that allows it to make money where others can’t? Or simply, because of its size, its stock market behavior and the characteristics of its investors, it believes it can win this war of attrition and endure losses for longer…
