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Amazon.com, Inc. (AMZN) Stock Will Fly With AmazonFresh

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Amazon.com, Inc. (NASDAQ: AMZN ) is sinking today along with other tech stocks like Apple Inc. (NASDAQ: AAPL ) and Facebook Inc (NASDAQ: FB ) on worries that Donald Trump will start clamping down on H-1B visas . Consider it a buyable dip in AMZN stock that lets you get in on Amazon's ever-growing list of innovations.

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Source: Atomic Taco Via Flickr

Like AmazonFresh.

Amazon has taken retail by store, sending a number of brick-and-mortar chains out of business and squeezing countless others. Moreover, it has forced the rapid evolution of e-commerce. That alone was reason enough to buy Amazon stock, but the company has had to branch out to keep investors buying into the growth story.

Hence Amazon Web Services (AWS). Hence Amazon Prime Music. And hence AmazonFresh, which sets its sights on the grocery industry.

AmazonFresh Gets Physical

Amazon's grocery arm has been in the works for nearly a decade, with the company perfecting the complicated logistics surrounding delivering food items in Seattle for six years before rolling the program out to select cities around the U.S. and London .

AMZN now plans to open 20 physical AmazonFresh locations over the next two years, and management believes the U.S. market will be able to support up to 2,000 new AmazonFresh locations. The new locations will be a mix of "click-and-collect" stores that allow consumers to drive in and pick up their online food orders, as well as traditional grocery stores in which customers can physically pick out their own items.

The new stores will give Amazon more of a chance to test out different formats and further perfect its offerings. AMZN is said to be using discount grocers like Aldi for inspiration .

Amazon is even developing license plate-reading technology that will make click-and-collect locations more efficient.

But … Well, Why?

Amazon already offers online grocery shopping options to consumers around the U.S., so many are wondering why the company - which has proven that online shopping is the way forward - would dip into the realm of bricks and mortar.

The answer? Amazon wants to put itself into direct competition with companies like Wal-Mart Stores, Inc. (NYSE: WMT ) that offer similar online grocery shopping options, but also give consumers the choice of stopping in to choose their own produce or pick up their groceries on the way home.

And why groceries, which are notoriously low-margin?

Amazon already offers consumers things like books, clothing and household items, but the grocery market does command about a fifth of consumer spending. Plus, Amazon isn't the only online grocery provider in the market - a market that's expected to more than double to $42 billion this year . So it's important that Amazon makes inroads now.

The online grocery business may be a growing marketplace, but delivering fresh food has its own unique challenges. Amazon has to use refrigerated delivery trucks and plan its delivery service to ensure that frozen goods don't spoil before arriving at consumers' homes. The logistics of the business are certainly costly, but that's why Amazon's 20-store rollout is a vital step forward.

Testing the new store format will give AMZN a chance to work out the cheapest way to get its grocery arm off the ground. Amazon is competing with seasoned grocery veterans like Walmart and Kroger Co (NYSE: KR ) that already have experience dealing with the challenges that come along with selling fresh food.

Just the Beginning

AmazonFresh is just one of the ways that Amazon is hoping to become a central shopping hub for everything from toothpaste to guitar strings. A big part of Amazon's growth story is the company's Prime membership, which generates a continuous revenue stream through subscription fees, and pushes people into buying Amazon without even putting their eyes in front of other retailers.

Prime members can use AmazonFresh for a discounted fee of $15 per month, which adds to Prime's value proposition.

Bottom Line for AMZN Stock

The rollout of physical grocery locations may seem odd for an e-commerce giant like Amazon, but the new stores mark a big step into the grocery industry. Again, it's not a high-margin play like AWS, but it's vital to the long-, long-term future of AMZN stock, which relies on the idea that Amazon will become a part of virtually everything retail.

Amazon has already upended the retail market, and it appears that supermarkets will need to keep an eye on AMZN next.

As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.

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The post Amazon.com, Inc. (AMZN) Stock Will Fly With AmazonFresh appeared first on InvestorPlace .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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