Will free deliveries for Prime members make Amazon the driving force in online grocery?

Discussion
Photo: RetailWire
Oct 30, 2019
George Anderson

Amazon.com just added another perk for members of its Prime subscription program. The e-tail giant has dropped the $14.99 monthly charge for grocery deliveries from Amazon Fresh and Whole Foods and added free, two-hour grocery deliveries into the $119 annual membership fee paid by Prime members.

“Grocery delivery is one of the fastest growing businesses at Amazon, and we think this will be one of the most-loved Prime benefits,” said Stephenie Landry, VP of grocery delivery, in a statement.

Prime members who have been receiving home deliveries of groceries via Amazon Fresh or Whole Foods will no longer pay the monthly fee. Others interested in using one of the services now that it doesn’t cost anything extra will need to go to a page set up by Amazon where they can request an invitation to join the program. Amazon has set the program up this way based on the expectation that demand for grocery home deliveries will spike as more Prime members learn about it.

Estimates put the number of current Prime members at over 103,000 in the U.S. Grocery delivery is available in more than 2,000 cities and towns around the country. Data from Second Measure, Recode reports, shows that Amazon has at least a 20 percent market share for online groceries in major markets including Los Angeles, New York and San Francisco.

With the decision to eliminate its monthly fee for grocery deliveries, Amazon appears to be making another investment to gain market share while sacrificing profitability. Last week, Amazon reported that its switch from free two-day delivery to next-day service for Prime members affected its bottom line with earnings per share coming in at $4.23 in the third quarter, down from $5.75 last year.

Last month, Walmart announced it was expanding its Delivery Unlimited grocery subscription plan to stores across the U.S. The service, which is available for a yearly fee of $98, or $12.95 a month, gives members the option of receiving unlimited same-day grocery deliveries from the chain. The retailer expects to offer the service from more than 1,600 stores by the end of the year.  

DISCUSSION QUESTIONS: Will the addition of free grocery deliveries prompt large numbers of Prime members to use the service? How will Amazon’s announcement affect grocery rivals that also offer home deliveries of groceries?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"Amazon’s ability to offer unrealistic benefits and make them consumer expectations continues, supported by other services. "
"The problem is, consumer demand for online grocery shopping isn’t quite there yet. People still like picking out their produce..."
"Amazon really had no choice after a decade of failed efforts to get any meaningful traction with Amazon Fresh..."

Join the Discussion!

31 Comments on "Will free deliveries for Prime members make Amazon the driving force in online grocery?"


Sort by:   newest | oldest | most voted
Mark Ryski
BrainTrust

Amazon continues to ratchet up the grocery home delivery arms race and while I’m sure this will be very attractive for some Prime members, I’m not sure it will have a significant impact on Prime memberships. As far as competition is concerned, other than the largest, everyone else is being left in the dust. Of course Walmart and Target will respond in some way, and other retailers will watch in wonder – how can this possibly be sustainable? It’s not.

Doug Garnett
BrainTrust

Great point on Prime memberships. Looks to me like Amazon is giving something away without getting anything back. Poor corporate management and poor marketing strategy.

Ken Lonyai
BrainTrust

This undoubtedly will drive more business, but not significantly.

I look at it as another chink in the armor Amazon has wrapped around the myth that when they paired with Whole Foods, they would be unstoppable. Whole Foods is such a mess in so many ways, especially its SKU for SKU excessive pricing, that this is just a Band-Aid.

Bob Andersen
Guest

Completely agree. Whole Foods’ same-store sales had been declining for two years before Amazon bought them. Plus, no one seems to get that grocery delivery will NEVER appeal to the majority of customers who want to SEE and touch their fresh meat and produce BEFORE they buy.

Lee Peterson
BrainTrust

Finally, the battle for Walmart’s $265 billion grocery business begins. I don’t think this is the end-all in terms of getting more market share, but it is DEFinitely the first shot over Bentonville’s bow.

Bob Phibbs
BrainTrust

I don’t think the reason people aren’t shopping for groceries online is shipping costs. Many want the choice of picking out fresh food themselves – which is also free.

David Naumann
BrainTrust

This could be the catalyst that inspires many consumers to try grocery delivery. In the U.S., online grocery ordering for delivery has not seen the adoption rates experienced in other countries.

Free grocery delivery is not a profitable model so I don’t expect a lot of retailers will match this offer, at least not right away. Let’s see how long it lasts for Amazon first.

Lee Kent
BrainTrust

I’m with you David. This may cause a splash but is not likely to be a game-changer. Unless of course they can figure out how to make it sustainable. Amazon still needs more diversity in their stores along with curbside pick-up, IMHO. And that’s my 2 cents.

Chris Buecker
BrainTrust

The interest and subscriptions of new Prime members will definitely go up. Zero cost for grocery delivery is, of course, very attractive to consumers. It will just be a matter of time until grocery giants like Walmart will (need to) follow. This is bad news for individual stores or smaller grocery chains, as they will hardly be able to offer the same service at no extra cost.

Neil Saunders
BrainTrust

This will help Amazon play catch-up, but it won’t propel Amazon into the grocery big league. First, most grocery purchasing still takes place in stores: and Amazon has not done anywhere near enough to make Whole Foods a significant player in that arena. Second, a lot of online grocery shoppers like services such as curbside collection, which Amazon cannot offer to the same extent as bigger players with more stores. Third, in brand terms a lot of consumers still don’t think of Amazon as a place to get groceries – and that needs to change before Amazon can get major traction.

Jeff Sward
BrainTrust

This is yet another gut punch for Amazon’s competitors. Another forehead slapping, “ya gotta be kidding me” moment. I continue to marvel at Amazon’s ability to internally subsidize market share grabs. So Amazon keeps winning the convenience war. And unless competitors can counter with better content, sales will migrate to Amazon. My favorite fresh baked sourdough has me captive to my shopping routine. Now where are my car keys?

Bob Amster
BrainTrust

It will if Amazon can make more money on Prime membership than it loses on free delivery, and I am not sure they can.

Joel Rubinson
BrainTrust

Not sure about this one since Amazon and groceries is not as tight of a branding connection for consumers as Walmart and groceries. Then there are the supermarkets. Whole Foods is too segmented in its appeal (I’m in the “wouldn’t go where I don’t find my favorite brands” segment). I think the right play would have been to acquire a mainstream supermarket, if grocery is the right play at all (such thin margins…)

Jeff Weidauer
BrainTrust

Amazon’s ability to offer unrealistic benefits and make them consumer expectations continues, supported by other services. I don’t see free delivery having a significant impact on growth for Amazon. Anyone who hasn’t tried the service is likely put off by more than the price of delivery. The fact is that Amazon is very good at logistics, but dismal at grocery. Whole Foods is hardly the juggernaut it was expected to be, and selling food is – and always will be – different from selling electronics or books.

Doug Garnett
BrainTrust

Really enjoy this comment, Jeff. This has been a concern of mine for years — “free” always gets a lot of people, but also isn’t a sustainable business practice for making strong companies.

Tony Orlando
BrainTrust

Have you seen the meat prices for Amazon delivery? They are incredibly high, which is fine with me and other supermarkets. Free is the most abused word in e-commerce, and if folks are willing to pony up twice the cost to get fresh meats, good for them. Fresh meats will be a niche item for them at best.

Harley Feldman
BrainTrust

Some additional Prime members will start using the free food delivery. However, food delivery will not address the requirement of many shoppers who want to view the food before it is purchased, especially in meats and produce. This service will be used by some new shoppers but will not be used by the majority of customers.

It makes more sense for Walmart to offer this service from its over 4,000 stores than Whole Foods in its much smaller footprint with its much higher price points.

Ken Morris
BrainTrust

Offering free grocery delivery to Prime members is all about lifetime value. Get members into the fold and you increase market share. Once a shopper is pleased with the service social media will advertise it on its own.

Increasing market share versus increasing profitability is the motivation behind this new promotion. It is irrelevant that the bottom line or the stock price drops, the important factor is becoming number one in the marketplace.

Amazon’s avenue to success lies in their scale. Membership fees and advertising are their foundation for profit, not the sale of cereal.

Ken Cassar
BrainTrust

Amazon Fresh has been losing grocery market share to Walmart Grocery and Instacart for a few years now. This was partially because of the cost (which Amazon has now fixed) and partially because of the relatively limited geographic scope of Amazon Fresh. If Amazon decides to dramatically increase its geographic footprint, it could impact the growth of Instacart and Walmart Grocery significantly. That’s a big IF, though. Amazon has historically been very conservative on this front and expansion into new markets would signal a whole new commitment to winning in grocery for Amazon.

Meaghan Brophy
BrainTrust

A few curious Prime members will try out free grocery delivery. Big grocery players like Walmart will try to respond by also offering free grocery delivery. The problem is, consumer demand for online grocery shopping isn’t quite there yet. People still like picking out their produce and the social interaction that comes with regular grocery shopping – for now. A few years from now, online grocery will likely gain traction. Amazon is starting another race to the bottom. They have the cashflow and willpower to lose money on grocery delivery (which is very expensive and logistically challenging) so that when consumers are ready to buy groceries online, Amazon will already be dominating the market.

Paula Rosenblum
BrainTrust

Not gonna lie. I have my first order coming in about 6 hours. BUT — if they come with ungodly amounts of packaging like they did before (Whole Foods post-Instacart), it will be my only order from them.

I am hoping they will make use of their shiny new vans to climate control the orders and not have to pack things in stacks of dry ice. If they can do that, it’s a winner. If not, people will continue to turn up their noses at the sheer wastefulness of it, and just buy via Instacart.

Ananda Chakravarty
BrainTrust
This is a real game changer — but attached to a huge cost. This will only work if Amazon can sustain the losses for an extended period of time. Its biggest challenge will be adoption rate by Prime members and unless this is hockey stick style, it will be forced to reevaluate grocery aspirations. They won’t have the option of increasing pricing on Prime without a potential backlash. Due to demographics, mostly this change will affect the affluent grocery market, so expect some internal cannibalization of Whole Foods with lower foot traffic. Rivals, especially serving less affluent markets, may even see a bump in shopping. In shopper terms, the convenience will be great if promises are kept and Amazon can deliver within the timeframes. If Amazon halts or charges for the service again in the future, they will lose the grocery race (at least this round). Landry is definitely taking a bold step, but if they’re willing to eat the losses for as long as it takes and there is rapid, broad adoption – they… Read more »
Shep Hyken
BrainTrust

Convenience just became less expensive. At least it appears that it is. So let’s be clear about this. It’s not really FREE. It’s just that there isn’t an extra charge. The cost of the two-hour delivery is baked into the price of the grocery items. For this to work, Whole Foods and Amazon Fresh will have to be competitive. Not necessarily offering the lowest price, but they need to stay away from the “Whole Paycheck” reputation that Whole Foods has been known for.

Still, grocery shopping is a ritual. Consumers like to touch and feel the produce they are buying. They like to pick out the fish and meats they plan to eat later that night. It will be a while before grocery delivery hits critical mass. Even thought it’s been around for a while, we still have a long way to go.

Michael Terpkosh
BrainTrust

Amazon may get an initial incremental bump in grocery sales, but then the ability to sustain the business will be dependent on high quality fresh (every time, all the time) and the right variety of center store items. Regardless of any sales gains for Amazon, they along with Target, Best Buy, etc. can’t absorb the cost of free shipping over the long-term. At some point they all will return to charging for shipping, create an incremental fee or raise the cost of goods. I agree with other comments, the grocery wars across the omni-channel are finally beginning.

Ken Wyker
Guest

Amazon recognizes that the biggest obstacle to growing online grocery shopping is overcoming inertia and gaining trial — many shoppers are simply reluctant to even try online shopping. After the initial experience, online shopping gets easier and some customers become regular users.

This is crazy when evaluated from a profit perspective, but just might be brilliant if Amazon is able to gain consumer trial before their local, brick and mortar competitors (like Walmart) can.

Brent Biddulph
BrainTrust
Amazon really had no choice after a decade of failed efforts to get any meaningful traction with Amazon Fresh, and customer backlash to two-tiered pricing at Whole Foods more recently. While Amazon has very successfully taken share from laggard grocers in the commodity center store departments via traditional Prime, that has not translated well to fresh foods or grocery shopping missions. After a decade of failed efforts to get any meaningful traction with Amazon Fresh, and the Whole Foods debacle with two-tiered pricing and eroding market share, perhaps they have learned new lessons. That’s the thing about Amazon, they test, learn, adjust, and invest heavily in that philosophy (with great loss in many cases, and Wall Street still rewards them). Beyond Walmart, Kroger, Albertsons and a few other regional grocers who own the local credibility in fresh, and are also investing in people, technology and analytic capabilities – this move may impact independent grocers and laggard regionals in the near-term; those still in denial about the changing consumer and investments that need to be made… Read more »
Kevin Merritt
Guest

Another interesting experiment by Amazon. I do not see this as any sort of “game changer” but it will be useful to a small segment of the shopping public. It will also help with the perception as the Everything Store. I think this helps the Amazon customer loyalists (that live in a supported city + are not price sensitive + are OK with limited selection). Otherwise, I think curbside will be the overwhelming favorite of the time-deprived. The rest of us who use see shopping as a quasi-pastime, social event, or exploration adventure will keep traditional grocery shopping alive and well.

The retailers must be struggling with this idea a bit given that I suspect the basket size would be smaller. Many purchases are impulse or tangential to the initial shopping visit. When we see Amazon master Whole Foods, then I think there is serious reason for concern in the (grocery) segment.

Bagrat Safarian
Guest

This is all very tactical. Amazon is in this for the long run, slowly chipping away at food shopper digital inhibitions while addressing the competition at every point. We’ll see more of these two steps forward, one step back moves in the coming months and years while Amazon gets the process just right for the majority of its customers.

Peter Charness
BrainTrust

Perhaps this isn’t so much about Amazon winning the grocery delivery business as it is about them causing their competitors to lose by having to match “free.” If Amazon doesn’t sell a single additional market basket through free delivery, but other Grocers have to now offer “free” as a customer expectation, then Amazon has indeed won another decisive battle.

Richard J. George, Ph.D.
BrainTrust

Amazon’s mantra has always been to seek “first mover advantage.” Free deliveries for Prime members is the latest such effort. However, as noted by other panelists, profitability will be a challenge. Plus, this strategy does not address the BOPIS issues associated with Whole Foods.

Independent and regional chains need to gird for the impact of this change as it is responded to by Walmart and Target.

James Tenser
BrainTrust

I don’t view free Prime grocery delivery as a preemptive act by Amazon at all. Walmart set the bar last month when it announced Delivery Unlimited. Amazon was forced to respond.

This is highly significant because it exposes an area of vulnerability for Amazon in the grocery sector. At this time, I don’t see it as highly competitive with respect to fresh and perishable grocery. Walmart’s physical plant is an immense fulfillment advantage versus Amazon’s patchwork of regional fulfillment centers and Whole Foods’ limited assortment.

wpDiscuz
Braintrust
"Amazon’s ability to offer unrealistic benefits and make them consumer expectations continues, supported by other services. "
"The problem is, consumer demand for online grocery shopping isn’t quite there yet. People still like picking out their produce..."
"Amazon really had no choice after a decade of failed efforts to get any meaningful traction with Amazon Fresh..."

Take Our Instant Poll

How likely is the addition of free grocery deliveries to prompt large numbers of Prime members to use the service?

View Results

Loading ... Loading ...