Amazon Drops Grocery Delivery Fee for Prime Members in the US as Competitors Close In

Amazon is dropping its $14.99 delivery fee as Walmart rolls out a $98 annual "Delivery Unlimited" grocery membership.

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Amazon Drops Grocery Delivery Fee for Prime Members in the US as Competitors Close In

Amazon is combining AmazonFresh and Whole Foods Market ordering on a single site

Highlights
  • Amazon has fat profits from its Web Services business
  • However, it battles rival grocery sellers like Walmart and Kroger
  • Walmart's "Delivery Unlimited" to reach half of US shoppers by year-end

Amazon.com is eliminating its grocery delivery charge for Prime members in the United States and making shopping easier by combining AmazonFresh and Whole Foods Market ordering on a single site, as it battles rival grocery sellers like Walmart and Kroger.

Amazon is dropping its $14.99 (roughly Rs. 1,060) delivery fee as Walmart - the No. 1 grocery seller in the United States - rolls out a $98 (roughly Rs. 7,000) annual "Delivery Unlimited" grocery membership to compete with Amazon's $119 (roughly Rs. 8,400) Prime delivery subscription.

Amazon has fat profits from its Web Services business and has demonstrated a willingness to lose money on initiatives aimed at driving more customers to its sprawling online marketplace.

Chief Executive Brian Olsavsky last week said "foregone shipping revenue" - or money Amazon would otherwise have brought in from customers who once paid for fast delivery - would contribute to a spike in Amazon shipping costs that some expect to top $11 billion (GBP 8.55 billion or roughly Rs. 78,000 crores) in the fourth quarter.

"I think that this is going to be a game changer, and it will grow into one of the most loved benefits of Prime," Stephenie Landry, Amazon's vice president of grocery delivery, said.

Amazon said in 2017 it was ending its Fresh grocery delivery service for select areas. Landry, however, said the business is growing and has expanded this year to areas like Nashville, Orlando and Las Vegas.

Amazon last week forecast revenue and profit below Wall Street's target, amid intense competition and surging costs related to its drive to speed up shipping times around the world.

Sales at Amazon's Whole Foods Market chain and other physical stores stalled in the second quarter and fell 1 percent in the third quarter.

Profits from grocery sales are notoriously slim. But selling staples like bananas, milk and toilet paper gives retailers like Amazon, Walmart, Target the opportunity to upsell shoppers who make frequent visits to replenish such necessities.

Tuesday's move from the world's biggest online retailer is yet another salvo in the continuing delivery "arms race," Charlie O'Shea of Moody's said.

Amazon is already cutting delivery times to one day for its Prime loyalty members in a bid to outmaneuver Walmart and other retailers who offer competing two-day shipping without subscription fees.

"This new delivery effort is yet another example of Amazon's willingness to suffer short-term for the potential for long-term benefit," O'Shea added.

Shares in Amazon slipped 0.6 percent in afternoon trading, while Kroger and Walmart were down 2.5 percent and 1.5 percent, respectively.

Walmart plans to offer its "Delivery Unlimited" grocery membership to shoppers in more than half of the United States by the end of the year. Members have the option of paying the $98 annual fee or $12.95 per month instead of the usual $9.99 delivery fee.

Kroger charges a $5.95 delivery fee and a $6.00 service fee to drop groceries at shopper doorsteps.

A recent study from Capgemini found that 38 percent of US consumers order groceries online, but that only 14 percent were willing to pay more for two-hour deliveries.

© Thomson Reuters 2019

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