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Photo: Getty, Photo Illustration: Tom Hall/Bloomberg Photo: Getty, Photo Illustration: Tom Hall/Bloomberg

Google Inc. will start testing a delivery service for fresh food and groceries in two U.S. cities later this year, stepping up competition with online retailer Amazon.com Inc. and startup Instacart Inc.

The trial will begin in San Francisco and another city, said Brian Elliott, general manager of Google Express, which already delivers merchandise, including dry foods, to customers. Whole Foods Market Inc. and Costco Wholesale Corp. will be among Google’s partners for the new service, he said.

"For a lot of our merchants that have been successful with this, we’re not representing the whole store today," Elliott said in an interview. "It’s in our incentive, as well as the merchant’s incentive, for us to help customers get the full store delivered to them."



Google is investing in delivery services for homes and businesses as it seeks to lure more traffic to its websites. The move puts the company in more direct competition with Amazon, which has rolled out its AmazonFresh service in several U.S. cities. In April, a report showed the e-commerce giant was the lowest-cost among rivals in New York. Online groceries are a $10.9 billion industry in the U.S., and the market is expected to grow 9.6 percent annually through 2019, according to a December report by IbisWorld. Amazon on Tuesday said it would enter the restaurant delivery business.

Google is also expanding next-day deliveries in the Midwest for more than 25 million potential customers in places such as Indiana, Wisconsin and Ohio. The Web company already offers services in Manhattan and Chicago with Walgreen Co., Kohl’s Corp. and other retailers.

The fresh-food trial, including fruits and vegetables, is part of a move away from making deliveries from warehouses, which can add complexity and requires refrigeration, Elliott said. Giving customers more options should help to boost profit and sales, he said.

"If I’ve got to pay someone to drive the product from point A to point B, the bigger the basket size, the more revenue I’ve got to offset that cost," he said.

(An earlier version of this article corrected the name of Amazon’s fresh-food delivery service.)

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— With assistance by Spencer Soper

(Updates on Amazon restaurant delivery business in fourth paragraph.)