Amazon makes grocery delivery free with Prime, ends $15/month fee under pressure from Walmart

Amazon is making free grocery delivery available as part of a standard Amazon Prime membership, on orders that meet a minimum threshold of $35 or $50, depending on location. (Amazon Photo)

Amazon plans to make grocery delivery a built-in benefit of Prime membership — no longer charging an extra $15 per month, or $180 per year, for Amazon Fresh delivery on top of the $119 annual Prime fee. The tech giant is also expanding and further integrating Whole Foods Market into its grocery delivery and pickup service.

It’s the latest sign of escalating competition in the market for online ordering and delivery of groceries. Amazon’s announcement Tuesday morning comes less than two months after retail giant Walmart began to roll out its free, unlimited grocery delivery service for a $98 annual fee, undercutting Amazon, while expanding its own “click and collect” pickup services.

Amazon is now countering by turning to one of its biggest assets — looking to leverage its large base of Prime members to take a bigger share of U.S. grocery sales. Prime members are estimated to number more than 100 million in the U.S., encompassing more than 60 percent of households in the country.

“I’ve been working in grocery delivery a long time, and I think this offering is truly a game-changer,” said Stephenie Landry, Amazon’s vice president of grocery delivery, in an interview with GeekWire. She predicted that free Amazon Fresh grocery delivery will become “one of the most loved benefits of Prime.”

Groceries are an estimated $675 billion U.S. market that is increasingly going digital. Research firm eMarketer estimates that U.S. food and beverage ecommerce sales will grow 18.2 percent to nearly $20 billion this year, making it “the fastest-growing product category online.”

Amazon has taken the lead in online grocery sales but faces tough competition from traditional retailers.

“Amazon is expected to own the largest market share of US food and beverage ecommerce sales in 2019 at 32.7%,” eMarketer said. “But Walmart, Target and Kroger are all leveraging their sizeable brick-and-mortar footprints and click-and-collect capabilities to aggressively ramp up their sales and challenge Amazon.”

Amazon has been integrating its online ordering, delivery pickup offerings with Whole Foods Market. (GeekWire Photo / Taylor Soper)

That competition one reason why Amazon is integrating Whole Foods delivery directly into the Amazon Fresh experience. Whole Foods has more than 500 stores in North America and the UK, giving Amazon a sizable retail footprint. It’s the latest move by Amazon to capitalize on its $13.7 billion acquisition of Whole Foods, first announced more than two years ago. Whole Foods had partnered with grocery delivery service Instacart prior to the Amazon acquisition.

Amazon also offers discounts to Prime members when they shop at Whole Foods, and has integrated Whole Foods ordering into its Alexa voice assistant.

To qualify for free delivery, Amazon grocery orders will still need to meet a designated minimum threshold: $35 or $50 depending on location. However, as with the Amazon Prime Now two-hour delivery service, the online Amazon Fresh and Whole Foods stores will have separate shopping carts, and the order minimum will need to be reached individually within either cart to qualify for free delivery. (Shoppers won’t be able to meet the minimum by combining their Whole Foods and Amazon Fresh carts.)

Amazon says free delivery from Amazon Fresh or Whole Foods will be available first to its existing grocery delivery customers, and then via invitation to other Prime members in the 2,000 U.S. cities and towns where the company offers grocery delivery services.

Walmart says it will offer grocery pickup from 3,100 stores and grocery delivery from 1,600 stores by the end of the year. Walmart’s expansion into online ordering, and Amazon’s expansion into brick-and-mortar retail, show how the retail industry is increasingly becoming one large market, blending online and in-person sales.

“What we’ve seen is our best customers tend to shop multiple channels with us, multiple access points to us,” said Walmart chief merchandising officer Steve Bratspies at a Barclays conference in September, explaining that the company has been able to gain market share in the past two years by embracing this “omnichannel” approach.

Meanwhile, Amazon has been expanding its Prime membership program at considerable cost, saying it will spend nearly $1.5 billion in the current quarter to continue its shift from two- to one-day free shipping as the core Amazon Prime benefit. Increased spending on shipping is one reason Amazon fell short of Wall Street’s profit expectations in its third-quarter earnings report last week.

Walmart followed suit not long after Amazon’s original one-day shipping announcement with its own free one-day shipping program.

Amazon has been trying to solve the economic problem of grocery delivery for more than a decade, dating back to the 2007 launch of Amazon Fresh as a pilot in Seattle.

The infrastructure and other costs associated with delivery cut into the already thin profit margins of the grocery business. But the expanding consumer appetite for online grocery ordering appears to be changing things.

“Years ago people didn’t think that consumers would buy things like clothing online,” Landry said. “And now we know that consumers are doing it in great numbers. We believe we’re at a similar turning point for fresh groceries and we’re ready to make a fresh grocery delivery a great new part of Prime.”

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