A fresh approach to online sales

As a small retail bakery in Orange County, California, Layer Cake Bakery does not have the clout on its own to reach the millions of potential customers throughout the Los Angeles metro area. That’s where AmazonFresh comes in. AmazonFresh delivery trucks arrive at dozens of bakeries and hundreds of food stores across Los Angeles to pick up orders that consumers paid for online to deliver right to their homes or offices.

“Place your order by 10 a.m. and have it by dinner, or by 10 p.m. and have it by breakfast,” proclaims the AmazonFresh website, which is an affiliate of the world’s largest online retailer, Amazon.com. “We bring your city to your doorstep — including bakery, seafood and meats, ethnic foods, gourmet meals, and much more. Order up fresh mahi-mahi, a tasty apple pie, or a crisp salad just in time for dinner.”

AmazonFresh carries more than 150 bread and bakery brands for online ordering, including French almond macarons and gluten-free cakes from Layer Cake Bakery, based in Irvine, CA. For the service, AmazonFresh takes up to 40% of the retail price of each item.

A nine-count box of assorted French almond macarons sells for $17 (or $1.89 per macaron) from Layer Cake Bakery on AmazonFresh (fresh.amazon.com).

“It’s working really well,” says Ehrline Karnaga, who owns Layer Cake Bakery with her sister Liz. “We get customers from Los Angeles because of that. They do such a good job of delivering.”

AmazonFresh, which in 2007 began delivering fresh groceries in its home city of Seattle (Amazon is based in Bellevue, Seattle’s largest suburb), recently expanded the service to Center City Philadelphia where it offers free delivery on orders over $35. Online customers who hate to shop at brick-and-mortar stores tap into a massive online shopping list of more than 500,000 everyday essentials, from apples to Ziploc bags.

As quoted in The Wall Street Journal, Amazon’s chief executive officer Jeff Bezos indicated at this year’s annual shareholders meeting that AmazonFresh wasn't yet making money. "They have made progress on the economics over the last year," he said, responding to a question about AmazonFresh.

Retail experts like Jim Hertel at Willard Bishop, a well-respected research and consulting firm, say they believe AmazonFresh is more about positioning for the long haul than making money right away on delivering fresh groceries.

“I do believe we are going to reach a point when at least a group of consumers are going to be more discontinuous when it comes to visiting a brick-and-mortar store, and Amazon will be one of the players that is there when that time comes,” Hertel says. “I really do believe they are thinking on a longer term basis. They’re tremendously experimentative.”

Sorting out the “last mile problem” remains one of the key obstacles to making money in the business of delivering groceries to people’s homes because of the high cost of delivery and the razor-thin margins prevalent in grocery retailing.

Yet AmazonFresh model relies more on high-margin items that consumers appear willing to pay a premium. Other retail bakers involved with AmazonFresh in Los Angeles include Cake Monkey Bakery, which specializes in gourmet pies, mini layer cakes and signature “Cakewich” snack treats (cake sandwiches with indulgent fillings). Cake Monkey runs a commercial kitchen in North Hollywood, CA, and plans to open its first retail storefront in Los Angeles soon.

Another bakery on AmazonFresh is Fonuts, a high-end donut shop in Los Angeles since 2011. Fonuts donuts are baked, not fried, and come in unusual flavors such as Blueberry Earl Grey, Chorizo Cheddar, Strawberry Buttermilk, and Rosemary Olive Oil. A half dozen Fonuts sell for $18.

Ehrline Karnaga of Layer Cake Bakery says the real challenge facing today’s independent retail bakery is making sure you get out in front of your customers, rather than waiting for them to come to you. Consumers are faced with so many choices it is difficult to compete without having a multifaceted strategy.

Founded in 2007 in Irvine, Layer Cake Bakery in May opened a second – and much larger – retail location in Fullerton, CA. The Fullerton store spans 5,000 sq ft, compared with 800 sq ft in Irvine. More space means room for more products. The bakery is doing more desserts, in addition to making its own ice cream (available in eight flavors). Specialty cakes at the Fullerton bakery include Mille Crepe Cake, which features 16 layers of crepes, layered with Grand Marnier and infused with chantilly cream.

“Before, we had to say no to some orders because we didn’t have the space,” Karnaga says. And working with AmazonFresh enables the bakery to expand its reach to many more customers. “The most important thing to us is the customer. They have to be able to find us.”