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Competition for Amazon's Wine Biz

Zacks Equity Research

Soon after the world's largest Internet retailer Amazon.com, Inc. (AMZN) announced its intention to get into the wine-selling business, Wine.com, one of the leading online wine retailers made a similar announcement. The latter is slated to launch an online platform -- Wine.com Marketplace, which will let smaller wineries sell their wines.

Wine.com started its business in 1998 and is based in San Francisco, CA. The company has used technology to its advantage by launching applications for iPads and iPhones. This along with its free shipping service has helped it build relationships with a large number of sellers, which has in turn built something of a position in the online wine selling business. 

Amazon’s initial focus is on consumers in Napa Valley, California. Wine.com is a well-established player in the space, so its experience with the supply chain is of great value.  hence making it cheaper for the small vineyards.

However, with 100.4 million monthly unique online visitors, Amazon should not be written off, far ahead of its closest rivals Apple (AAPL), which gets 47.5 million visitors and Wal-Mart (WMT), which gets 41.4 million visitors every month.

According to a study conducted by MarketResearch.com, the U.S. wine market is expected to touch $33.5 billion with 871 million gallons of wine sales by 2013. The study forecasts that wine shipments will expand at a CAGR of over 3% from 2010to 2013.

Amazon is one of the leading players in the extremely fast-growing retail ecommerce market and its strength lies in its huge scale of offerings, its broad reach and platform approach.

Amazon’s third quarter revenue was $13.81 billion, up 7.6% sequentially and 26.9% from the year-ago quarter. This was better than the guidance for the quarter of $12.9-$14.3 billion (up 6.0% sequentially, or up 25.0% year over year at the mid-point) and more or less in line with consensus expectations. Year-over-year revenue growth was 30% excluding unfavorable currency impact.

Currently, Amazon has a Zacks #4 Rank, which implies a Sell rating in the near term.

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