UPDATE 1-Amazon, U.S. mail test grocery deliveries around San Francisco

Thu Sep 4, 2014 5:42pm EDT

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SAN FRANCISCO, Sept 4 (Reuters) - Amazon.com Inc has begun using the U.S. Postal Service to deliver groceries on a trial basis in the San Francisco area, in a potential boost for the online retailer's fledgling but gradually expanding "AmazonFresh" service.

The postal service began a 60-day trial in the first week of August, shipping small grocery parcels in insulated bags right to buyers' doorsteps between 3am and 7am in the morning, where demand for delivery is generally at its lowest.

Depending on how things go, the partners may consider expanding beyond the city and going nationwide, a spokeswoman for the postal service said.

Amazon's fast-growing business could give the cash-strapped postal service a shot in the arm. USPS has struggled with declining mail volumes and persistent losses for years, though its package-delivery business grew 6 percent to 3.7 billion packages in 2013.

The agency lost $2 billion from April to June, compared with a net loss of $740 million in the same period of last year.

The postal service is now trying to "determine if delivering groceries to residential and business addresses would be feasible from an operations standpoint and could be financially beneficial for the organization," the spokeswoman said in a statement.

Amazon declined to comment beyond saying in a statement: "We are always looking for new and innovative ways to deliver packages to customers."

It already uses the postal service for Sunday deliveries, and intends to roll out that feature to "a large proportion" of the country this year.

The company has steadily expanded its online grocery business, targeting one of the largest retail sectors yet to be upended by online commerce. The company has plans to launch AmazonFresh, which has operated in Seattle for years, in roughly 20 urban areas in 2014, including some outside the United States.

The tie-up was first reported by the Wall Street Journal on Thursday. (Reporting by Edwin Chan; Editing by Bernard Orr)

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