Amazon is turning up the heat once again in the world of groceries, and specifically grocery delivery, to make its services more enticing in the face of competition from Walmart, as well as a host of delivery companies like Postmates. Today, the company announced that it would make Amazon Fresh free to use for Prime members, removing the $14.99/month fee that it was charging for the service up to now.
The move is part of a bigger effort that Amazon is making into grocery delivery, which now covers some 2,000 cities when you combine Whole Foods and Amazon Fresh delivery locations. Alongside free delivery, Amazon is giving users one and two-hour delivery options for quicker turnarounds, and it’s making users’ local Whole Foods inventory available online and through the Amazon app.
Prime members who were already using Amazon’s grocery delivery services — either for Amazon’s own-branded service or to get Amazon-owned Whole Foods shopping delivered — will continue to get these, now free.
But Prime members who might be interested in trying this out for the first time will have to sign up here and wait for an invite. (“Given the rapid growth of grocery delivery we expect this will be a popular benefit,” Amazon explained about the waitlist.) It seems that the footprint for Amazon Fresh is currently quite small — around 21 metro areas, Amazon tells me — with the rest of that 2,000 covered by Whole Foods, so the sign-up process could also be one way for Amazon to decide where to roll out Amazon Fresh next.
Twenty-one is not a big number for Amazon — even if you consider this to be “metro” areas combing several adjoining towns and cities — and so it’s likely that it would expand this if it can figure out how the whole business will make it rather than lose it money over the long term.
“Prime members love the convenience of free grocery delivery on Amazon, which is why we’ve made Amazon Fresh a free benefit of Prime, saving customers $14.99 per month,” said Stephenie Landry, VP of Grocery Delivery, in a statement. “Grocery delivery is one of the fastest growing businesses at Amazon, and we think this will be one of the most-loved Prime benefits.”
Making Amazon Fresh free is the latest price tinkering (and reduction) that Amazon has made to drive more usage of the grocery service, while at the same time expanding the sweeteners it gives to consumers to lure them into Prime memberships. The $14.99/month fee was introduced back in 2016, itself a reduction on a $299/year fee that Amazon previously charged Amazon Fresh customers. Before that, Amazon charged a $99/year subscription plus separate delivery fees to use the service.
It’s not clear how many customers are already using Amazon Fresh, or whether the service is profitable for the company at this point. Notably, despite the boost of Amazon owning the Whole Foods chain of supermarkets, analysts earlier this year estimated that while Amazon was still seeing its grocery service growing, that growth was slowing. (To add to that, we’ve seen some consolidations that point to Amazon looking for ways to simplify — and reduce the cost of — its overall food and beverage offerings.)
Despite all this, in the U.S., about a year ago it was estimated in a separate report that Amazon accounted for about one-third of all grocery delivery in the U.S.
Grocery delivery is a tricky business, much more perishable than delivering a book or a piece of clothing or consumer electronics. But if done right, it represents a frequently recurring line of revenue. To add to that, Amazon has made fast and free delivery one of the major cornerstones of how it grows its business and attracts customers away from using other online shopping options, or visiting actual brick-and-mortar stores (an area where it looks like it may be expanding, too).
In other words, regardless of whether it is profitable or not, it makes sense that Amazon would invest in ways of trying to boost its grocery delivery service, making it free being perhaps the biggest boost yet (next stop: cash back when you use it?).
Simply put, it fits with the company’s more general economies-of-scale approach: bring in more users buying more groceries, and make up the margins in the latter to offset losses from the former.
But the move to make deliveries “free” — free, that is, for those who are already paying $12.99/month or $119/year for Amazon Prime — is a classic Amazon move not just to boost its own usage numbers of the service.
The company is facing persistent competition from a number of other companies also providing online grocery shopping and delivery. In the U.K., just about every large grocery chain offers this service directly (or through another non-Amazon partner). And in the U.S., Walmart announced just last month that it would be expanding its $98/year Delivery Unlimited service, which up until today would have been a cheaper deal than Amazon’s. Both Postmates and Doordash are among the delivery hopefuls who also have ambitions to make a dent in this area.