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., StaplesInc. and Walgreen Co.
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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.”
Date: October 14, 2014