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Google Aims to Compete with Amazon in Fresh Food Delivery Market

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Google forays into perishable goods market

Google (GOOG) announced its foray into the perishable goods market early this month. The search engine giant is all set to try a fresh grocery delivery service in two US cities, including San Francisco. Google has yet to disclose the name of the other city.

The objective is to leverage the lucrative grocery shopping market. It is currently a $10.9 billion industry and projected to grow annually by a CAGR (compounded average growth rate) of 9.6% by 2019 according to an IBISWorld report.

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Competition for Amazon

Recently, Eric Schmidt, chairman of Google, commented at an event in Berlin, “Many people think our main competition is Bing or Yahoo. But, really, our biggest search competitor is Amazon. People don’t think of Amazon as search, but if you are looking for something to buy, you are more often than not looking for it on Amazon.”

Amazon (AMZN) has been in the fresh food delivery market since 2006 when it first launched its AmazonFresh grocery service. Google’s new initiative is an attempt to directly compete with Amazon in the fresh food delivery space.

Google Express will begin the trial for the new delivery service with partners that include Costco Wholesale (COST) and Whole Foods Market. Google Express is Google’s same-day shopping service. Customers can place orders online from retail stores such as Staples (SPLS) and Walgreen Company (WAG).

The two companies’ operational processes are completely different. Google works directly with local retailers, while Amazon maintains its own warehouses and has a much larger selection of items to choose from. Amazon dominates the same-day delivery market.

Same-day shipping market has huge growth potential

According to a report from Business Insider’s BI Intelligence research service, and as the chart above shows, the US same-day delivery market could grow from $0.10 billion in 2014 to $4.03 billion in 2018, at a compounded average growth rate of 150%.

For diversified exposure to Google, you could invest in the iShares US Technology ETF (IYW). IYW invests about 4.3% of its holdings in Google.

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