By Alistair Barr and Rolfe Winkler
Google Inc. is expanding its delivery service and will start
charging a membership fee, intensifying its battle with Amazon.com
Inc. for consumer spending.
Starting this week, Google will charge $10 a month, or $95 a
year, for unlimited same-day or overnight delivery on orders over
$15. Nonmembers will pay $4.99 an order, or $7.99 if the order
costs less than $15. Until now, the deliveries had been free.
The service, initially named Google Shopping Express but now
known simply as Google Express, lets customers place orders online
for products from physical stores run by retailers including Costco
Wholesale Corp., Staples Inc. and Walgreen Co.
Google said it is expanding the service to Washington, D.C.,
Boston and Chicago on Tuesday. It previously served the San
Francisco Bay Area and parts of New York City and Los Angeles. The
company is also adding retailers, including PetSmart Inc., Vitamin
Shoppe Industries Inc. and Sports Authority Inc., and it has begun
testing deliveries of some fresh food in the San Francisco
area.
Google Express is part of the company's mounting competition
with Amazon, which attracts a growing share of product searches.
The rivalry has intensified this year as Amazon introduced faster
delivery options in several new cities and expanded its AmazonFresh
grocery business.
Amazon's Prime program, which includes unlimited two-day
delivery, costs $99 a year. The company's Prime Fresh
grocery-delivery service membership is $299 a year, and it includes
unlimited same- or next-day delivery for orders of at least
$35.
"Many people think our main competition is Bing or Yahoo,"
Google Executive Chairman Eric Schmidt said Monday in Berlin. "But,
really, our biggest search competitor is Amazon."
Sameer Samat, Google's vice president of shopping, said that the
new fees and squeezing more deliveries from each trip should help
make Google Express profitable over the long term. He declined to
comment on whether the service is profitable now.
Google charges retailers a commission, but that may not match
the cost of paying workers to gather and pack the orders, as well
as outside courier firms to deliver the orders to shoppers' homes
in Google-branded vans.
"It's a business that at scale can be, we believe, very
attractive," Mr. Samat said. "We have to invest in and build the
ecosystem to get to that point."
That will be expensive. Evercore analyst Ken Sena estimates it
would cost Google about $3 billion a year to reach the 100 largest
U.S. metropolitan areas, or about 10% of Google's forecast 2015
earnings before interest and tax.
Most retailers involved in the program are cautiously
optimistic. Richard Galanti, chief financial officer of Costco,
said customers of the warehouse-club retailer who shop both in
stores and through Google Express are spending more, but they visit
the stores less often, which may reduce impulse purchases.
"We've seen relatively good results so far. We're happy to
expand with them," Mr. Galanti said. "But we also recognize it's in
the early stages."
At least three early participants--American Eagle Outfitters
Inc., Office Depot Inc. and the grocery-store chain Lucky--have
dropped out. Those three retailers declined to comment.
In addition, Target Corp. and Whole Foods Market Inc., a leading
grocery chain, aren't expanding with Google to the three new
cities. Whole Foods recently started working with Instacart, a
delivery startup that specializes in fresh food. That deal covers
many more Whole Foods stores than Google Express.
Write to Alistair Barr at alistair.barr@wsj.com and Rolfe
Winkler at rolfe.winkler@wsj.com
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