Amazon.com Inc. announced Tuesday that it is eliminating its $14.99-per-month fee for grocery delivery, making delivery from Amazon Fresh and Whole Foods Market one more perk included in Prime membership.
Grocery delivery is available across 2,000 cities and towns that range in size from dense urban areas to more sparsely populated locations.
One- and two-hour delivery windows are available in most cities, and the e-commerce giant said it will be expanding that geographically as well.
“We think that’s going to be a game-changing offer that members will come to value as a key part of Prime membership,” Stephenie Landry, vice president of grocery delivery, told MarketWatch.
At the very least, it’ll make it cheaper for Prime members to get their bananas, the No. 1 item ordered on Amazon Fresh and Whole Foods Market, according to Landry.
Data from Incisiv, a group that provides market intelligence to brands and retailers, shows that digital grocery sales are expected to reach $150 billion in the U.S. by 2025, which will account for 14% of overall sales. They expect delivery to grow 150% by 2021.
That could come at a cost though. “While online ordering drives topline growth, it typically comes at the expense of profitability,” wrote Incisiv in the September report. “Other than shipping from distribution centers or drop-shipping by vendors, all other forms of online order fulfillment (third-party deliver, click-and-collect and curbside) negatively impact profit margins.”
Amazon AMZN, -1.02% is in the midst of a major investment in halving Prime delivery from two days to one day.
During its third-quarter earnings announcement last week, the company said it had exceeded the $800 million investment it said it would make in the second quarter to speed deliveries. And the investment in delivery and other parts of the company continues.
Landry did not comment on the size of the investment Amazon made to do away with the $14.99 grocery fee, but said the company has a “willingness to invest in benefits that customers will value.”
In a statement, Landry also called grocery delivery “one of the fastest-growing businesses at Amazon.” When asked for metrics to quantify the growth, Landry didn’t comment, only saying the company thinks we’re “at a turning point for fresh groceries,” in terms of customers’ growing willingness to order groceries online and have them delivered.
Walmart reported 37% growth for U.S. e-commerce in its most recent earnings report, including online grocery.
“As we scaled grocery pickup in the U.S., it unlocked new capabilities like grocery delivery,” said Doug McMillon, chief executive of Walmart, in the earnings announcement. “Customers love these services, and we’re rapidly expanding them to new locations and testing new options such as unlimited grocery delivery for a fee. And now we’re taking convenience to a new level with InHome Delivery.”
MarketWatch also asked Amazon about the environmental impact of expanding its grocery delivery benefit, but did not receive a response.
Shoppers, particularly millennial shoppers, are increasingly concerned about climate change, and are making purchase decisions based on the impact to the environment.
Amazon has taken steps to make delivery more sustainable and recently set a goal to reach Paris Climate Agreement goals 10 years in advance, though the plan has been met with skepticism.
“This new delivery effort is yet another example of Amazon’s willingness to suffer short-term for the potential for long-term benefit,” said Charlie O’Shea, Moody’s Amazon analyst. “This new Amazon initiative comes on the heels of its acknowledgment on its recent earnings call that next-day delivery costs for Q4 were causing a $1.5 billion adjustment to earnings for the quarter, and we note that the company spent $9 billion on shipping in Q3.”
Chris Perry, vice president of global executive education at market research firm Edge by Ascential, thinks this latest move in grocery is a setup for the future.
“By removing barriers for trial and repeat and adding immense value among such a large population of loyal Prime Members, not to mention leveraging a naturally high traffic season to maximize visibility and consideration, Amazon is setting itself up to jump its market share baseline and leadership position heading into 2020,” he said.
Amazon stock is up 17% for the year to date, while the S&P 500 index SPX, +0.04% has gained 21.3% this year.