Grocery Executives Worry Amazon Will Sacrifice Profits to Deprive Them of Sales

By Heather Haddon Features Dow Jones Newswires

Grocery delivery companies are worried Amazon.com Inc. will sacrifice profits to deprive them of sales.

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"They are one of our first competitors who doesn't really care about making money," Thomas Parkinson, co-founder of Peapod, a pioneering grocery delivery service owned by Ahold Delhaize NV, said on Tuesday at the WSJ Global Food Forum in New York. "So that's a challenge for us."

Amazon upended book selling and other retail sectors by concentrating on market share over margins. Grocery executives expect the e-commerce giant's purchase this summer of Whole Foods to presage a similar rush into their business. Amazon sold about $1.6 million in Whole Foods store-branded beans, cereal and other products online in the month after taking over the chain.

Pradeep Elankumaran, co-founder and chief executive of Farmstead, a San Francisco-area delivery startup, said he aims to make his startup profitable relatively soon. "We do have to make money," the former Lyft Inc. executive said in an interview on the sidelines of the conference.

Mr. Elankumaran said Farmstead has several thousand active users and received $3 million in venture funding since its launch. He said the company is using predictive algorithms to sell a more limited selection of products than the tens of thousands sold at traditional grocery stores, reducing warehousing costs.

"No one has ever done a good job in grocery delivery," said Mr. Elankumaran. "It's so outdated."

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Dick Boer, chief executive of the Ahold Delhaize chain that operates grocery stores across the U.S. and Europe and bought Peapod in 2001, said he believes high transport costs outside densely populated urban areas will cap delivery in the U.S.

"Your country is so big," said Mr. Boer said. "There will be a kind of a limit on how far you can go with online delivery models."

Mr. Parkinson, who took orders by fax when he founded Peapod in 1989, said he is adding meal kits to his product offerings to keep ahead of the competition. He said Peapod is working with food makers to develop meal kits that are cheaper and contain less packaging than those sold by competitors such as Blue Apron Holdings Inc.

He said such meals will cost about $5 at Peapod, compared with some $10 at other subscription meal kit services. And, he said, they will still generate a profit.

"That's the big focus of Peapod since we started, to actually make money, " he said.

Write to Heather Haddon at heather.haddon@wsj.com

(END) Dow Jones Newswires

October 10, 2017 13:04 ET (17:04 GMT)