Food fight: Amazon to take on Canadian grocery stores

This Monday, Oct. 31, 2005 photo shows Tide laundry detergent on a shelf at a New York supermarket. (AP / Mark Lennihan)

TORONTO -- Online retailer Amazon is taking on supermarkets by delivering food directly to Canadians' doorsteps.

The U.S. retail giant, which built its business selling books and entertainment through the mail, launched its new grocery category Thursday, in what's certain to be an intensifying battle between grocers.

Amazon says the initial selection includes 15,000 non-perishable grocery products, like coffee, cereal and baby food, from a variety of brands such as Campbell, Nestle, Pepsi, and Kellogg.

While the launch doesn't include perishables like milk, fruits or vegetables, it's a strong sign that Amazon wants to make inroads in an area of the food business that hasn't been tapped by any company in Canada outside of major cities.

Amazon.ca country manager Alexandre Gagnon said the next step is to grow its lineup of products.

"No one customer is the same, so our focus is on providing a broad selection of brands so that customers can easily and instantly find and buy exactly what they are looking for," he said in an emailed response.

Amazon (Nasdaq:AMZN) said most of the food items can be shipped for free using its two-day subscription service Amazon Prime.

The strategic move will make it tougher for the country's biggest grocers like Loblaws (TSX:L), Sobeys and Metro (TSX:MRU), who have been focused in the last few years on competing against U.S. big box retailers like Target and Walmart.

Canadian grocers have been enveloped by massive consolidations of the market as they attempt to lower overall costs and increase buying power with manufacturers.

In June, Sobeys bought the Canadian assets of U.S. grocer Safeway for $5.8 billion, a deal that will expand its reach in key urban markets in Western Canada.

On its heels, Loblaw secured an agreement to buy Shoppers Drug Mart Corp. (TSX:SC) for $12.4 billion in cash and stock that is also still under review by the federal competition agency.

For retailers, price competition and exclusivity have taken a priority over setting up digital storefronts like their U.S. competitors. Earlier this year, Walmart Canada opened its own digital storefront for food that includes dairy, meat and non-perishables.

Other smaller grocers like Longo's offer similar delivery services in the Toronto area through Grocery Gateway, and Sky Rise Foods offers the service in Vancouver.

Canada's largest grocery stores have also shifted a stronger focus to fresh foods, partly because the U.S. retailers haven't spent much time trying to corner that area of the market. Target Canada doesn't stock fruits and vegetables in its limited food section, while Walmart has been gradually expanding its produce line as part of its larger supercentre format.

With all of these changes underway, shopping online has become an afterthought for retailers, which has given Amazon a relatively open field to grow its business, especially with younger consumers.

This week, the company also opened a section of its website that sells automotive products, which adds to the expansion into toys and beauty products launched earlier this year.

In the U.S., Amazon recently began testing a broader selection on groceries under the label AmazonFresh, which ships staples such as milk, and fruits and vegetables, to consumers in the Los Angeles and the Seattle area.