Amazon's express-delivery unit has been granted a permit to operate a food business at a sprawling University City warehouse, a sign that the e-commerce giant is bringing its so-called Prime Now service to Philadelphia as it zeroes in on an as-yet unclaimed market niche for groceries and household essentials.
Prime Now L.L.C. was granted a license last month to operate a "food establishment" bigger than 5,000 square feet at the West Philadelphia property that fills most of the block at 41st and Chestnut Streets, according to the Philadelphia Department of Licenses and Inspections website.
Prime Now delivers groceries, toys, pet supplies, basic clothing items, and other everyday goods within two hours of being ordered in dozens of cities including New York, Baltimore and the Washington, D.C., metro area. Also available for delivery in some markets are meals from area restaurants, similar to services offered by GrubHub and Caviar, and inventory from Whole Foods Market, which Amazon.com Inc. acquired last year.
In Philadelphia, Prime Now would be competing with delivery offerings such as ShopRite From Home and the Giant supermarket-affiliated Peapod service, as well as with locally based GoPuff, which markets itself as a convenience store on wheels for busy people.
Amazon's older grocery business, AmazonFresh, also serves customers in Philadelphia. Users of that service generally have to place orders a day or two in advance and to await delivery within a two-hour window that they reserve.
Barbara Kahn, a marketing professor at the University of Pennsylvania's Wharton School, said Amazon is adjusting its formula for grocery sales and trying different approaches in different areas because so much of the market for online food-and-beverage sales remains untapped.
Only 23 percent of U.S. shoppers bought food or beverages online in 2016, but that figure is expected to grow to 70 percent within the next five to seven years, according to a January report by data tracker Nielsen for the Food Marketing Institute.
Kahn said Amazon was determined to seize the bulk of that growth, as it has done with other retail sectors that have migrated online.
"When you see all this growth of online, it didn't happen with food," she said. "But that's where people spend most of their money. This is the low-hanging fruit."
An Amazon spokesman did not immediately have any further details about its plans for Prime Now in Philadelphia. David Adelman, chief executive of Campus Apartments, which owns the 68,000-square-foot West Philadelphia building through an affiliate, said the property has a long-term tenant but declined to provide any other details.
Permits issued for the aged building show extensive work being completed there over the last year, including the construction of loading ramps, stairways and a break room and the installation of new plumbing and climate-control systems. Prime Now received its food-business license from Licenses and Inspections on Feb. 1.
As with AmazonFresh, Prime Now users must pay $99 a year, or $12.99 a month, for Amazon's Prime subscription service. But while the older grocery business requires users to pay an additional monthly fee of $14.99, two-hour delivery is free through Prime Now, with one-hour deliveries costing $7.99 in most markets.
The two services, which Yahoo Finance reported last month are in the process of merging, have overlapping, though not identical, inventory.
Bringing its speedier Prime Now service to Philadelphia gives Amazon an opportunity to hone its grocery-business strategy in a city that is relatively well-served by brick-and-mortar supermarkets and where online sales are already widely available through various grocers, said Bill Bishop, cofounder of food-retailing consultancy Brick Meets Click in Barrington, Ill.
He said Amazon may take advantage of the densely populated neighborhoods that surround the 4100 Chestnut St. property by allowing customers to collect orders there that they place online, similar to pilot pickup stations for AmazonFresh customers in the company's Seattle home.
"Amazon is known to like to test things," he said. "This is giving them a chance to go into a market of significant size that is already pretty well-served by traditional grocers and see how they do."