Alphabet Inc (NASDAQ:GOOG) just launched a service that will revolutionize our lives and provide a massive revenue stream for the company that will send GOOG stock soaring. What is this service, you ask? Grocery delivery. OK, I wasn’t serious about its impact, but the new service is an interesting venture for a company known for delving into high-tech projects.
Alphabet’s home delivery service, “Google Express,” will begin shipping fresh groceries to select areas in San Francisco and Los Angeles. Google Express is a service that partners with retailers in some U.S. cities to deliver items ordered online to customers within hours.
Alphabet—more commonly called Google, the company’s original name—is interested in providing home delivery of groceries as a way to lure more traffic to Google stock’s portfolio of web sites. The online grocery market is valued at $10.9 billion in the U.S. and it is expected to grow 9.6% annually by 2019. It’s pretty obvious why Google would want a piece of it. (Source: “Google to Start Testing Grocery Deliveries This Year,” Bloomberg, September 8, 2015.)
The move into grocery delivery puts GOOG stock up against Amazon.com, Inc.’s (NASDAQ:AMZN) “Amazon Fresh” delivery service. However, rather than relying on a warehouse to store groceries, which can be very costly, Google says it will be picking up deliveries from partnering stores, such as Costco Wholesale Corporation (NASDAQ:COST), Whole Foods Market, Inc. (NASDAQ:WFM), Smart & Final Stores Inc (NYSE:SFS) and Vicente’s Supermarket.
But cost savings is just one of the benefits Google stock gains from cutting out warehouses. Google says deliveries direct from its partners will also cut down on risks associated with owning its own inventory, such as food spoilage. Google can also expand the service much more quickly than Amazon Fresh, since it doesn’t need its own warehouses the way Amazon’s service does—good news for holders of GOOG stock.
To accommodate its customers, Google will be reducing customer delivery windows to two hours from four for goods purchased from participating stores. For two-hour delivery, Google is also raising the minimum total of an order from $15.00 to $35.00. Google Express members, who pay an annual membership of $95.00, can have deliveries dropped to their door for free on orders that meet the minimum requirements or for a $3.00 small-order fee. Non-express members will be charged a delivery fee starting at $4.99 on every order and an additional $3.00 service fee on small orders. (Source: “How Much Does Delivery Cost?” Google Express, last accessed February 18, 2016.)