Prime members will have to pay for grocery deliveries from Whole Foods

Discussion
Photo: RetailWire
Aug 04, 2021

Amazon.com is currently offering free two-hour deliveries of grocery orders from Whole Foods at no additional charge to Prime members. That, Bloomberg reports, is about to change as the company is planning a pilot program whereby annual subscribers to the service will pay a fee of $9.95 to have their grocery orders delivered.

The pilot, which will begin on Aug. 30, will affect Prime members in the Boston and Chicago markets. Others in Manchester, NH, Portland, ME, and Providence, RI, will also have to pay for their grocery deliveries from Whole Foods.

An email sent to affected members included the message that the fee will be used to cover operating costs so that  Whole Foods will be able to “offer the same competitive everyday prices in-store and online.” Grocery pickup will continue to be offered for free to Prime members.

Whole Foods saw orders for deliveries spike during the pandemic and Amazon’s decision to wrap free delivery and pickup as a perk for Prime members served to heighten demand even further. Amazon rolled out free curbside and in-store pickup last October on orders of $35 or more with members able to pick up within an hour in some cases.

Demand for delivery skyrocketed during the early months of the pandemic with Amazon, at one point, putting new customers on a waiting list as it tried to catch up with demand. Amazon also converted a Whole Foods location to a dark store to better help manage demand.

Sixty-four percent of American adults purchased groceries online at some point last year, according to FMI’s “U.S. Grocery Trends 2021” report and 29 percent placed weekly orders.

Many consumers also shifted their grocery purchases from supermarkets to mass merchandisers, according to FMI’s research. Walmart, the nation’s largest grocery retailer with over $288 billion in annual sales between its namesake stores and Sam’s Club, has frequently been cited as the biggest beneficiary of this trend. The retailer currently offers Walmart+ members free same-day delivery of groceries on orders of $35 or more.

Walmart also announced earlier this year plans to expand the number of automated local fulfillment centers it operates. These compact modular warehouses are built within existing locations or as an addition. Walmart began testing the concept at a store in Salem, NH, in 2019 before deciding to expand its use.

DISCUSSION QUESTIONS: In what ways do you expect Prime members to react to Amazon’s $9.95 delivery fee for delivery orders placed with Whole Foods? Will grocery delivery fees become common retail practice even among customers participating in annual subscription programs such as Prime or Walmart+?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"This might be the right business move for Amazon but it is going to cost Whole Foods."
"Unfortunately, it may be the delivery drivers who pay a price with a reduced tip."
"All these add-ons really do add up. When COVID finally retreats, all these costs of convenience may just seem way too high."

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21 Comments on "Prime members will have to pay for grocery deliveries from Whole Foods"


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Mark Ryski
BrainTrust

I suspect that most Prime members with simply pay the $10 delivery fee. If you’re a Whole Foods shopper, you’re likely not overly price sensitive and, as much as increased delivery cost will not help demand for delivery, if COVID-19 cases continue to increase the delivery fee won’t make any difference at all — many customers will still have groceries delivered. I do believe that delivery fees will continue to creep back into pricing as all retailers struggle with balancing customer service/convenience with profitability.

Neil Saunders
BrainTrust

In a lot of cases, the costs of the delivery service are already covered in the difference between the price of goods – with some online products being more expensive than those purchased in stores. This is understandable as the operating model for delivery is expensive. However Whole Foods is smart to harmonize prices as this makes operations easier to manage. Admittedly, the elevated product prices are hidden whereas the delivery fee is very obvious. So I would certainly expect some customer pushback and churn. I don’t think Amazon will worry too much about that, mostly as its online grocery sales have soared during the pandemic, often to the detriment of store operations and revenues. So a little rebalancing may not be such a bad thing.

Bob Amster
BrainTrust

Some Whole Foods loyalists will pay because they can and like the store. Some will abandon it because $10 per delivery on top of the Prime membership may make it a lot less attractive for them. Either way, it was bound to happen. Many of us on this panel have been predicting that there is no free delivery forever, and we are now beginning to see that we were right.

Georganne Bender
BrainTrust

There is a price to pay for all of the crazy curbside delivery competitiveness that’s going on right now. The fact that Amazon, one of the largest retailers in the world, is starting to charge a delivery fee for Prime members means that this is just the tip of the iceberg.

Jeff Sward
BrainTrust

Amazon Prime membership has been one of the best customer acquisition tools of all time. And it is already one of the best values anywhere in the retail universe. Free grocery delivery would be a money loser of epic proportions. Of course Prime members should pay for grocery delivery.

Ray Riley
BrainTrust

I would expect this is Amazon’s way of driving delivery business to their Fresh banner where more and more items are private label with higher margins. As a weekly Fresh customer in Chicago, I love the free delivery within two-hour windows. This delivery fee via Whole Foods allows Amazon to strengthen margins on fulfillment by creating more efficiency with delivery cadences from Whole Foods locations – where the volume of in-store fulfillment has marred their in-store experience (a frequent complaint from customers and analysts alike). It will be very telling should Amazon apply the same fee to their Fresh delivery business with the two-hour windows currently being free.

Steve Dennis
BrainTrust

Delivery convenience wars have been driving a race to the bottom for several years — with COVID-19 adding a whole new dimension. While it’s impossible to predict the precise impact, I expect it to be material. But there are three things we know for sure: 1) much of local grocery home delivery is wildly unprofitable, 2) the economics improve dramatically when consumers do the work (i.e. curbside pick-up/BOPIS/”normal” shopping and 3) cross-sell and up-sell is much better in the store. Expect more moves from the competition to stem the bleeding.

Rich Kizer
BrainTrust

Over my retail years, I have learned that it is easy to give deals and harder to take them away. Some will complain and threaten to change their shopping choices. A lady I just spoke with on the street this morning looked at me and said “that’s $40 a month add on, and to me it’s not acceptable. I’ll go somewhere else.” Of course, I do think the convenience of this service to their their loyal customers will be absorbed by them without much trouble, or threat.

Ken Lonyai
BrainTrust
The statement that Whole Foods will be able to “offer the same competitive everyday prices in-store and online.” says it all. Amazon spin works for so many of their Kool-Aid drinkers — I mean Prime members — that Amazon knows it can keep getting away with incremental price increases and fees. In many of my RetailWire posts, I have stated how I have compared products SKU for SKU many times and the best Whole Foods has done is be in parity with competitors, but so often they are higher priced by 20 percent – 50 percent across categories. In other words, they’ve redefined what “competitive prices” mean for their believers. They have so masterfully crafted addictive behaviors on amazon.com and at Whole Foods that exploit human laziness, convenience, and need to belong, that many of their shoppers accept whatever is forced upon them. It was the plan all along. Start free or cheap and then creep up prices and fees all the while cranking up the PR engine. If that wasn’t so, the new fee… Read more »
storewanderer
Guest
2 months 15 days ago

This really depends a lot on the region. Compare Whole Foods pricing to Safeway pricing in CA and you will not see a 20-50% difference. Well, you will see Safeway 20% above Whole Foods on some items.

Mohamed Amer
BrainTrust

Faced with a new delivery fee, Prime members will increase basket size, reduce the frequency of delivery orders, visit the store more often, and reduce or eliminate the delivery tip. They are least likely to shift their purchases to a competitor.

Ben Ball
BrainTrust

Not well. Most Prime members see the benefit as a “one time fee covers it all for a year” deal. I don’t know the numbers, but I suspect Whole Foods picked up a good chunk of new customers specifically because they were already Prime members and, by definition, averse to per-transaction delivery fees. Avoiding the delivery fees of other retailers more than offset Whole Foods higher prices — at least perceptually. Now that benefit for shopping Whole Foods is gone. And those Prime members will be back to “lowest total landed cost” shopping. This might be the right business move for Amazon but it is going to cost Whole Foods.

Jenn McMillen
BrainTrust

If you can afford to shop at Whole Foods, you likely can afford the $10 fee. For many, Whole Foods delivery is already likely habitual, so is it worth the effort to start over with another grocer, who may not have the organic/alternative selections that Whole Paycheck is known for?

Raj B. Shroff
BrainTrust

I don’t think Prime members will care that much about the added fee, there is such a halo of value over anything Amazon. And Whole Foods is still a different animal. If anything, just the message that it will cost might get people to decide to drop into the store more often. Not because $10 is expensive, just because they know how easy it is to do pickup or walk the store. Maybe this ends up a net positive for Amazon if that holds true for even a few trips per shopper, larger basket due to more impulsive purchases in person.

Grocery delivery fees might become common but they might be added as a part of a tiered structure (think Costco tiers). You can get the Whole Foods+ or the Whole Foods+ Grocery plan, etc. Then people pay for X deliveries per year whether they use it or not. Many other programs outside of grocery have tiers, those have to be in the works.

Gary Sankary
BrainTrust

I would expect some pushback from some customers who see this as a nickel and dime fee, but I doubt that will be a majority or that it will do anything to change Amazon’s approach. Whole Foods is an ongoing revenue issue for Amazon. I suspect that this is an opening play to a new, more expensive version of an Amazon Whole Foods subscription service that will be a revenue generator for Amazon and obscure the cost of the actual delivery.

Heidi Sax
BrainTrust

It will deter some shoppers, probably as much due to frustration over free delivery taken away as because of the fee itself. It will be interesting to see whether that means more customers will opt for curbside pickup and whether their experience will be friction-free. Unfortunately, it may be the delivery drivers who pay a price with a reduced tip.

Peter Charness
BrainTrust

Who says inflation is just a temporary, one time bubble…? Yes, some people can afford all these add-on fees, and yes, thankfully, labor scarcity is moving wages up quickly and well past what any minimum wage proposals would have done. But at some point the add-on fees have to cause people to pause and get into their cars (which have been selling quickly — both new and used), and pick out their own food and meals.

Whole Foods aside, Instacart costs vs. do your own shopping: markup per item, delivery fee, service fee; Grub Hub and others: markup per item ordered, delivery fee, service fee … my last order-in meal was probably 25 to 30% more expensive than my driving over to pick it up.

All these add-ons really do add up. When COVID finally retreats, all these costs of convenience may just seem way too high.

storewanderer
Guest
2 months 15 days ago

It all depends on what value people are getting out of Prime. Some may decide to drop Prime but continue to purchase via delivery from Whole Foods (Amazon wins). Others may decide to just keep paying for Prime and drop the delivery from Whole Foods (free delivery was a money loser, so Amazon wins again).

There may be a few people who decide to drop Prime and drop Whole Foods over this move, but something tells me that is a pretty low number.

Shep Hyken
BrainTrust

Surprise! Especially for the Prime members who pay over $100. That said, I get it. It’s expensive and is not economically viable for Amazon to continue to offer the “free service.” I’m sure they’ve run the numbers. They will lose grocery customers. They will lose Prime members. Will the $9.95 fee make up for it? We shall see.

This also opens up the door a little wider for competitors. It will be interesting to see how Walmart and others react.

Customers are willing to pay for convenience. Pre-pandemic, many restaurants delivered for free. Today many of them charge for delivery. The customer is willing to pay. But they aren’t paying $119 for a membership that included delivery.

Kenneth Leung
BrainTrust

Those who are wedded to grocery delivery will pay the $10 fee. Given the increased labor costs and scarcity, free grocery delivery simply doesn’t make economic sense for Whole Foods, who would have to subsidize it with higher prices.

Allison McGuire
BrainTrust

I don’t think Prime Members will appreciate this fee. If your annual fee for delivery isn’t inclusive of all Amazon properties, it diminishes the value of being a Prime Member. I suppose Amazon is betting that a majority of customers will stay for convenience and fast turnaround, but I’m not so sure. Customers have options now that grocery has caught up with technology since the pandemic. This might end up being a huge mistake for Amazon.

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Braintrust
"This might be the right business move for Amazon but it is going to cost Whole Foods."
"Unfortunately, it may be the delivery drivers who pay a price with a reduced tip."
"All these add-ons really do add up. When COVID finally retreats, all these costs of convenience may just seem way too high."

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