Google is Going Directly After Amazon, Aggressively Scaling Its Express Delivery Business

After testing its new delivery service for the past six months, Alphabet Inc (NASDAQ:GOOGL) is now rolling out a streamlined system to 20 U.S. metro areas, putting it in direct competition with Amazon.com, Inc. (NASDAQ:AMZN).

The parent company of Google will nix delivery of perishable foods like bread, milk, and eggs, which it was testing in its initial pilot program since February in San Francisco and Los Angeles. Instead, it will step up its offerings of non-perishables like canned goods, condiments, spices, and other items that aren’t in danger of spoiling.

More importantly, it’s rolling out its Shopping Express business to 20 U.S. metro areas. General manager Brian Elliott said recently:

“We’ve been testing a lot of different things, figuring what works, and how it works,” Elliott says. “And now we’re really, dramatically scaling the business.”

“We made the hard decision to focus on dry good groceries and having that be national,” Elliott says. “For now, we’re not gonna sweat the milk, and eggs, and ice cream side of it.”

Unlike Amazon, Google doesn’t warehouse items itself. Instead, it’s signed up at least 50 well-known merchants for its delivery service, including Target, Walgreens, Whole Foods, Costco, PetSmart, and more.

The logistics play will likely include dropping a lot of its own branded delivery vans. Google is partnering with third party delivery services like OnTrac and Dynamex to handle the increased delivery load. It remains to be seen whether Google will keep its own fleet of vehicles, or simply leverage third parties from now on.

“In a year from now, what we want is for this not only to be nationally present, but something that people see as a big part of their everyday lives,” Elliott says. “We want to go from 50 merchants to hundreds of merchants.”

And that puts Google now directly in competition with Amazon’s Prime Fresh service.

Alphabet shares fell $8.24 (-1.03%) to $790.58 in Tuesday morning trading. Year-to-date, GOOGL has gained 1.61%, versus a 4.9% rise in the S&P 500 during the same period.

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Meanwhile, Amazon shares are also off more than 1% to $762.62 this morning. AMZN shares have fared much better than Google this year, gaining nearly 13% since the start of 2016.

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