Whole Foods goes from free to $10 grocery delivery fee for Amazon Prime members

Discussion
Photo: Whole Foods
Sep 28, 2021

Being an Amazon.com Prime member will no longer get you free two-hour deliveries from Whole Foods Market beginning on October 25.

Whole Foods announced in an email to Prime members last week that it would tack on a $9.95 delivery charge to all home deliveries from its stores. The chain said that doing so would make it possible to sell groceries online for the same price as in-store and help cover the costs associated with the service, including investments in equipment and technology.

“Our prices are consistent between the store and online options, which is something you don’t see with a lot of our competitors,” a Whole Foods spokesperson told Business Insider. “We are starting to see more customers come back to shop in stores, which is something we encourage with our contactless payment options.”

The decision to charge Prime members for Whole Foods’ deliveries followed a six market test during the summer in the Boston, Chicago, Detroit, Manchester, NH, Portland, ME, and Providence, RI areas. Whole Foods has said that it has seen a spike in home delivery activity since the beginning of the novel coronavirus pandemic last year.

Prime members looking to save money while continuing to shop Whole Foods online have the option of placing orders for pickup in-store or curbside. The chain said it will continue to offer free-one hour pickup for Prime members.

Some members, who pay $119 annually for two-day delivery from Amazon and other perks, including the one Whole Foods is ending, are unhappy with the decision and took to Twitter and other social media to express their negative emotions.

One disgruntled Prime member named Ruben made the point this way: “Amazon: Are you sure you can’t waive delivery fees? We did — per @JeffBezos — just pay for delivering Jeff into ‘space’ earlier this year — it can be his way of thanking us for a change.”

Many pointed to the diminishing value of the Prime membership as they claim Amazon continues to remove perks. Others said drivers will receive smaller tips, leaving Amazon to profit as low-paid workers pay the price.

Brandy O’Neill, a food blogger who goes under the name Nutmeg Nanny online, said that she will not renew her Prime membership.

“I felt they were taking away a service, and the fee is ridiculous,” Ms. O’Neill told The Washington Post. “It’s just rude.”

DISCUSSION QUESTIONS: What will be the net effect of Amazon.com’s decision to charge Prime members for home deliveries from Whole Foods? Should Amazon be concerned about the perceived value of holding a Prime membership?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"This decision just furthers consumers’ perception of Whole Foods as an unreasonably high-priced retailer."
"...the transparency that this is an effort to pass on increased costs to the consumer speaks to the overall rising costs in the unit economics for grocery deliveries. "
"This reminds me of the old joke: “We lose money on every sale, but we make up for it in volume.”"

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32 Comments on "Whole Foods goes from free to $10 grocery delivery fee for Amazon Prime members"


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Mark Ryski
BrainTrust

This change will undoubtedly cause some shoppers to go elsewhere, but I suspect the overall impact will be small. Clearly the optics of this move aren’t great – given how wildly profitable Amazon is – but the realities of delivery services and cost are real, even for Amazon. I suspect that only a small percentage of 100+ million Prime members shop at Whole Foods, so I doubt that this will have any significant impact on Prime membership.

Bob Amster
BrainTrust

We do not know the internal numbers (acquisition, delivery, returns, etc.) but many of us on the BrainTrust have been indicating for years that free delivery has its costs (I like the sound of that). Eventually, retailers were going to have to charge the expense of delivery to something or someone. Here we are, inching back to the world of reality. The industry is not done charging for delivery. We may be able to deliver a $5,000 Chanel bag for free, but not $50 worth of anything.

Michael La Kier
BrainTrust

There is significant value in a “same price” omnichannel model, but this will probably get lost. Convenience and value are king; adding a delivery fee – as with adding any friction – will likely cause shoppers to consider other options.

George Anderson
Staff

Those options, both more profitable for Whole Foods and other grocers, is having customers pick up their purchases outside or in the store. Even better yet is having customers handling the job of picking and transporting their own groceries.

Melissa Minkow
BrainTrust

This decision just furthers consumers’ perception of Whole Foods as an unreasonably high-priced retailer. This also doesn’t do much to help Amazon’s image. As many grocers are moving to lower barriers to entry for order delivery, this isn’t a particularly competitive strategy. And, since Whole Foods are typically located in neighborhood spots that are convenient to the population that would most likely shop them, I would imagine that charging this steeply for delivery will just price the retailer out of the delivery market completely.

Ken Morris
BrainTrust

Will this make my moon trip cost me less? I believe that Amazon believes the demographic that shops Whole Paycheck will not blink at the cost, but Instacart will be the winner here. With robotic pick, pack and ship, it gets cheaper—not more expensive—to process orders. I think the switch to charging for delivery will backfire. Consumers have too many options, and competitors will be taking full advantage of Whole Foods’ misstep here.

Rick Watson
BrainTrust

You cannot think about the consumer experience, the fees you charge, and your financial model separately. They all need to be considered together.

I’m left feeling that Whole Foods still hasn’t really transformed to the extent it needs to lower its own costs.

All told, Amazon’s retail strategy with Whole Foods is still muddled several years in now.

Gary Sankary
BrainTrust

It’s not all that often that Amazon creates openings for their competition — but here we are. Delivery fees are going to be perceived as gouging by more than a few Amazon Prime customers who are also using home delivery for Whole Foods. I suspect competitive offers will hit the market from businesses that will do a better job obscuring delivery fees in the cost of items, rather than expose the cost as a line item on their grocery bill.

Mohamed Amer
BrainTrust

While threats to cancel Prime membership are expected, actual behavior will tell a different story.

Faced with a new delivery fee, Prime members will increase the basket size while reducing the frequency of delivery orders, visit the store more often, and forego the delivery tip. They are least likely to shift their purchases to a competitor or cancel their Prime membership. The Prime and Whole Foods combination is five years old, and free grocery delivery does not define membership. Nevertheless, when you take a free perk away, you better plan for some unhappy customers.

Liza Amlani
BrainTrust

The effect of Amazon.com’s decision to charge Prime members for grocery delivery will backfire and brand loyalty is just not enough anymore to get customers to pay more out of pocket.

There are a lot more players in the market and customers have more choice than ever on where to shop with many free delivery options.

The aftermath of Amazon’s choice to offer “less” will drive customers to other grocers but it won’t hurt Amazon. Whole Foods is its weakest link and, let’s be real, losing a few grocery customers is not going to cause a dent in Amazon’s profit margins.

Dave Bruno
BrainTrust

I have very frequently taken advantage of the Whole Foods free delivery perk as part of my Amazon Prime membership, and have justified my Prime membership fees because of it. As such, I will most likely cancel my Prime membership next year. However, in an excruciatingly ironic twist, I suspect Amazon is adding this exorbitant fee in an attempt to push people back into the store and to break the free delivery habit — that Amazon created.

KatieThomasKCI
Guest

I agree – I think the more powerful point in the above is “Many pointed to the diminishing value of the Prime membership as they claim Amazon continues to remove perks.” – between longer shipping times and decreasingly reliable reviews, many consumers will question this membership. Perhaps Prime Video provides some cover…

Jeff Sward
BrainTrust

Whole Foods did not fund the ludicrous Bezos moon shot. Amazon Prime was already one of the best values in the retail universe long before free grocery deliveries. The whiners might not find a whole lot of other free delivery services available to switch over to. It’s hard to understand what they are complaining about. It was never actually free. Where does the entitlement stop?

David Spear
BrainTrust

Welcome to reality. Delivery on any item – whether that be groceries, a smart TV or set of golf clubs – is expensive. For those who want the convenience of delivery, there is a fee. Remember when you purchased a couch or bed and the retailer gave you the choice of personal pick up from their warehouse location (with your truck for free) or delivery with their truck for a $100 fee? Clearly, Whole Foods will lose some customers — but those who are frequent shoppers who see the value in their mind’s eye won’t blink to order delivery again.

DeAnn Campbell
BrainTrust
The entire premise of Amazon’s Prime membership for the past decade has been access to free shipping, so this is going to upset a lot of their loyal customers. I expect that initially a lot of Prime members won’t renew and will reduce the frequency of their Amazon purchases, but only time will tell if they find other retailers to fill the void or slowly drift back to Amazon – though possibly without paying for Prime. This is all part of the process of weaning Amazon Retail off of the support of AWS and becoming profitable in their own right, since shipping and returns are frankly killing Amazon’s profit margins. Although it’s a risky move with Alibaba’s recent announcement of worldwide $3, three-day delivery. In truth I’d like to see the entire industry get back to a paid shipping model, putting more emphasis on in-store pickup to improve profit margins for all retailers and to begin reducing the environmental impact of frequent deliveries, not to mention lessening the noise on my street from the constant… Read more »
Dr. Stephen Needel
BrainTrust

If you can afford to shop at Whole Foods and delivery is a thing for you, this won’t matter. That said, nobody should be surprised they did this. We all said it would happen in this forum – hook them in then jack up the price.

Neil Saunders
BrainTrust

Groceries are low margin. Grocery delivery is expensive because of the volumes involved and the time-consuming nature of picking. And the cold chain requirement adds complexity and cost. Taken together, this means that profitability in online grocery is low to non-existent. Despite the higher prices and the fees from Prime memberships, this includes Whole Foods. Squaring this circle is part of the reason to start charging fees. The other dimension is to manage capacity constraints which have crept in during the pandemic. Will this have an impact? Sure, but it will be at the margins – and Amazon’s overall growth in grocery will mask any underlying churn.

Richard J. George, Ph.D.
BrainTrust

The net impact of this decision is the removal of a benefit that many Prime members deemed to be important. No doubt this will result in some member attrition. This decision underscores the expenses associated with final-mile delivery. The question at the end of the day for Amazon is, will product margins from charging a delivery fee versus free delivery offset the loss of customers? I suspect Amazon has done pro formas that support the potential enhanced profitability of this decision.

Ben Ball
BrainTrust

Amazon did a good job with the spin on this by subtly pointing out that they are being transparent with the added costs of a delivered order, correctly insinuating that some retailers are not. But this is still the blunder many of us predicted when we first mused on RetailWire about this idea. Even though consumers (and the panelists here) usually agree that pricing transparency is a good thing, the fact is that consumers don’t want to see costs — they want to hear “FREE”! I doubt this will cut Whole Foods’ home-delivery business substantially long-term. And many of those orders will move to curbside pickup. Whole Foods shoppers tend to be Whole Foods shoppers. But it is a huge strategic faux pas for Amazon overall. The last thing they need right now is to be knocking holes in their own value-driven moat against competition.

Shep Hyken
BrainTrust

Short answer: People are willing to pay for convenience. Sure, there will be some that choose not to use what used to be “free delivery,” but many will continue to do so. The difference is that they will make sure they get everything they need in their order, knowing that when they forget an item it will cost them another $10.

Could this impact Prime memberships? If this is the only value a member receives, then it doesn’t make sense to pay $120 plus $10/delivery. There is a cost to delivery. Amazon (and any other retailer with a delivery program) must consider what it takes to stay profitable. This reminds me of the old joke: “We lose money on every sale, but we make up for it in volume.”

Ken Wyker
Guest

How many times has it been said that free delivery is “table stakes” and that retailers should eat the cost of their e-commerce activities to remain competitive?

I think the real news here is that even Amazon realizes that free delivery doesn’t make financial sense for grocery. As we move beyond the pandemic-driven e-commerce boom, grocery retailers will want to encourage customers to come back to the stores as Whole Foods is doing here.

Steve Dennis
BrainTrust

There are two issues here. It’s well established that most grocery home delivery is very unprofitable on a per order basis. And, everything else being equal, free delivery has to be much less profitable than the customer doing the work to come to the store rather than paying a worker (or having robots to do it). Plus, the retailer gets the incremental profit from potential impulse purchases in-store. It’s inevitable something had to give here. So this is the tip of the spear. The other issue relates to how Amazon rolled this out. This was poorly handled. Changing a core Prime benefit so significantly with little warning is just dumb. And even if it weren’t, they certainly could have started with a lower fixed fee or a tier structure to test the impact and lessen customer pushback.

Ken Lonyai
BrainTrust

We discussed this when the pilot launched. Essentially, this is in line with everything Amazon has done to date in it’s march initially to profitability and now to greater profitability. I don’t see this working for Whole Foods though. It’s essentially a decision to pigeonhole delivery and stymie growth outside of stores. There’s too many options for mainstream consumers beyond Whole Foods for them to accept this.

The Amazon acquisition was never good for Whole Foods AND it’s shoppers. It was and still is smoke and mirrors. Amazon gets access to a good demographic for other purposes and that’s where it ends.

Ananda Chakravarty
BrainTrust

This needs a PR translation: “We can’t afford to offer free 2hr delivery.”

Ecommerce traffic for WF is dropping as customers return to stores.

There is a slight backlash against Prime because delivery has been one of Prime’s more attractive perks with tangible benefit. The model is dependent on volume and for WF operations it becomes unsustainable if ecommerce traffic isn’t there. We’ll see a drop in Amazon Prime members with some hemming and hawing, but not substantial. The WF world is still largely separated from the Amazon wagon, and essentially, WF is acting on its own with a Prime service that is probably no longer being subsidized.

I believe another brain trust member pointed out that delivery costs will start with less frequent, higher basket size transactions by existing Prime members. Few will want to pay a $10 fee for a $50 purchase on top of the ~$10 they pay monthly, especially if this was a major perk for them. Expect WF ecommerce to deteriorate further as it moves back to stronger in-store purchasing.