Amazon's 1-Hour Delivery Cart Now Moves on to Atlanta - Analyst Blog

Just a week after IncAMZN expanded Prime Now to Dallas and two weeks after its launch in Baltimore and Miami, the company rolled out Prime Now in Atlanta last week. This makes it the fifth city to have Prime Now (Manhattan being the first city). However, it will only deliver to 22 Atlanta zip codes for now.

AtlantaLikes Speed!

Atlantaoften features on the list of America's most tech friendly cities. Its city and state officials offer an attractive welcome basket laden with tax incentives (during the last week of March, the Georgia Assembly voted to lengthen the state's angel investor tax credit for three years more). Besides, it has a talent stream fed by institutions like the University of Georgia which staffs tech startups.

Its millennial demographics have a lot to do in shaping up a mobile-first, digital-first economy as they are driven by the urge to test-drive Teslas, trying the latest iPhone/Galaxy 6s and adopting gigabit fiber network speeds. Tech-based business-to-consumer companies are thus keen on offering more goods and services to this population.

Atlanta's need for speed seems to have been reflected in two ways last week - first Comcast announced that next month it will start selling lightning-fast 2-gigabit per second Internet service to 1.5 million homes in the city.

Second, Amazon rolled out Prime Now service - which promises one-hour same-day delivery of household goods to Prime subscribers.

Amazon Prime Now

Amazon spoils its members and how. Whether its members are lazy, procrastinators, or whether they are genuinely busy or the weather is bad, Amazon always comes to their rescue. Amazon Prime Now is just another way that lets Amazon do this.

In Dec 2014, Amazon rolled out the one-hour delivery to a very small zone in Manhattan. The online giant in February confirmed to Mashable that the service will be available all across Manhattan.

Amazon Prime Now in Atlanta gives Amazon customers the option to get tens of thousands of daily essentials delivered to them within 60 minutes. However, this service is being launched in only select zip-codes for now.

Prime Now offers this amazingly convenient service for free for two-hour deliveries from 8 am to midnight, with one-hour deliveries available for an extra $7.99 (7 days a week). All Prime Now items can be browsed and purchased through a dedicated app.

What exactly does Amazon do if it fails to deliver items within the promised timeframe is still vague.

Paying $7.99 for getting household items delivered to your doorstep can be a little expensive, especially if you just order a few household items. However, we must remember that Amazon gives substantial discounts on such items and customers are likely to recoup a portion of the delivery cost by paying less for the delivered items. Also, there is a convenience cost that comes to play.

What about Investors?

Prime members clearly benefit from such services. But what about the company and its investors?

In the last reported quarter, Amazon posted a profit of 45 cents per share, surpassing the Zacks Consensus Estimate of 24 cents. Shares soared more than 12% in extended trading following the report. Amazon gave credit to its delivery service, Prime.

It's important to understand the nature of Amazon's core business. Amazon is mainly an online retailer. This kind of business has a very low barrier to entry. It is cheaper to set up and thus attracts a lot of competition. There is no limit to the number of competing businesses that are waiting to snatch share away from the existing players. eBay EBAY and Alibaba BABA are all part of this bandwagon. Online retailers also face competition from brick and mortar stores with an omni-channel format like Walmart.

Therefore, carving a niche in this business requires a lot of marketing, an excellent customer service model and a rational pricing strategy. Dealing with all three and getting it right in order to maximize profits is definitely a lot of hard work.

To be a formidable player in this space, Amazon must constantly offer excellent services.

Prime Now will be part of an enhanced delivery strategy -- an important part of Amazon's growth.

So, as the perks of Prime members increase, subscriptions go up, which in turn increases the operating margins of the company. That's why such services are very important.

Also, the Prime advantage to Amazon is when people pay a subscription charge they want to maximize on it. As a result, they use the service as much as possible, driving sales for the company. Since these people become repeat customers, it increases customer loyalty for the brand. Amazon is giving more and more products and service perks to members so that they stick around.

The reason it is rolling out the Amazon Prime Now service slowly is the challenge in the local market. Small players can find niches and address specific needs of people simply because they are nimble operators. So Amazon has more challenges fending off local players in its express delivery system.

Amazon currently holds a Zacks Rank #3 (Hold). Investors can also consider PetMed Express, Inc. PETS as it sports a Zacks Rank #2 (Buy).

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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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