Amazon getting into grocery business

Reuters news agency is reporting that the online retailing giant Amazon is getting into the grocery business.

Amazon has been testing a grocery delivery service called AmazonFreshin Seattle for at least five years, two people familiar with thecompany's plansbut not authorized to speak aboutthem told Reuters. The service employsAmazon's own fleet oftrucks to deliver fresh food products such as fruit, eggs and meat to customers who order thegroceries online.

The online retailer, whichstarted out selling books but now sells everything from electronics to clothing, plans to expand the grocery service toLos Angeles possibly as early as this week and to the San Francisco area later this year, Reuters reported.

Could expand to 20 cities in 2014

In the U.S., Amazon already sells some non-perishable food items in the grocery and gourmet food section of its website, but the new service would offer fresh food and produce and use Amazon's own trucks to make the deliveries, as opposed to the postal and courier services currently used to ship items.

If the service is successful, Amazon might expand it to 20 other citiesin and outside the U.S. next year,one of the company sources told Reuters.

The grocery business in the U.S. had about $600 billion in sales last year. Operating revenuein Canada's grocery sectorwas about $82 billion in2011, according to Statistics Canada.

On both sides of the border, smaller players are already being squeezed out not just by large grocery chains like Whole Foods and Safewaybut by large retail chains like Wal-Mart which sell all manner of goods and have also gotten into the grocery business.

Amazon's new venturecould cut into the profits of both small and large players, as well as the delivery companies that ship goods for Amazon.

Grocery stores increasing online offerings

To date, online grocers have not had huge success. One of the first such sites, HomeGrocer.com,was a product of the dot-com boom, but itflamed out soon after it was bought by Webvan in 2000.

Since then, a range of sites, such as FreshDirect.com andNetgrocer.com in the U.S.and Spud.ca in Canada, have also tried to break into the business although these are oftenlimited to certain geographic regions or specialty products.

Grocery stores themselves, including large chains like Safeway and Wal-Mart and smaller stores like Longo's, the Toronto grocery store that operates GroceryGateway.com, have also begun allowing their customers to shop remotely through their store websites.

AmazonFresh would be just the latest expansion of Amazon's increasingly diverse services. It continues to expand its stable ofe-readers and tabletsand has been beefing up its video streaming services,announcingplans for a set-top box for TVsand the creation of several original series. It has also continued to invest heavily in the data centres and IT infrastructurethat make upAmazon Web Services, which provides cloud computing and other IT services to businesses.

Amazon's growing ambition has so far had the support of investors. Its share price rose almost 40 per cent in the 12 months to April 2013. Amazon stock was down slightly Tuesday, closing at $265.70 US on the Nasdaq.