Amazon is rolling out free grocery delivery to Prime members, raising the bar at a time when competition is already at a high point.
The retail and logistics behemoth announced Tuesday that Prime members will get free, two-hour delivery from AmazonFresh and Whole Foods Market included in their subscription. Members can now order tens of thousands of products online, including meat, seafood, produce, snacks and household essentials to their door in one- to two-hours depending on the city. It was previously an additional $14.99 for the service on top of the cost of a Prime membership.
The announcement comes as grocery delivery companies face off in a fierce competition for a growing number of online grocery shoppers. On the table is an estimated $100 billion in online grocery spending by 2022, according to the Food Marketing Institute and Nielsen.
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In just the last year, online grocery shopping has soared from 38 percent to 56 percent, according to an August 2019 report from the research firm TABS Analytics.
While it still represents only 2 percent of the market, it’s the fastest-growing e-commerce category, at around 18 percent, according to the e-commerce research firm eMarketer.
“The whole market is at an inflection point and there is some evidence of hockey stick growth in adoption of online grocery [in 2019],” Andrew Lipsman, a principal analyst with eMarketer, told NBC News. “The proverbial millennials have families now, so we have online habits but we’re at a totally different life stage. We’re not fresh out of college anymore.”
Instacart, which offers third-party delivery services for stores like Costco, Wegmans, and Aldi, leads the pack in growing its market share of grocery delivery, according to the consumer research group Edison Trends. Instacart has grown its market share to 69 percent in the last year, while AmazonFresh dropped its market share from 14 percent to 9 percent this year, according to Edison Trends. Walmart has also grown in the online grocery industry, with its buy online and pick up in-store option. An estimated 29 percent of online grocery shoppers bought groceries online at Walmart in 2019 compared to 15 percent the year before, according to eMarketer.
Who will come out on top of the grocery delivery wars depends on which company can best leverage its resources to make sure consumers get quality products quickly — a difficult task in urban areas where people are more likely to grocery shop online, said Lipsman. It is expensive and time-consuming to get shoppers their groceries over what retailers call “the last mile,” the short distance between a warehouse or store to your home. Amazon has a competitive edge over this distance because of its vast and complex network of third-party vendors who race to deliver packages to your home, which has brought the company under scrutiny for putting workers and the public at risk.
Amazon not only has the delivery network, but the dollars to invest in free grocery delivery. The company told NBC News that it won’t increase prices of its items or decrease pay for workers to make up for the loss in AmazonFresh subscription revenue. Earlier this year the company launched one-day delivery on all Prime packages — an initiative that cost the company $1.5 billion — and a 9 percent drop in its stock price last week. But the company, and analysts, weren’t fazed. Amazon still has more than $42 billion in cash and short-term investments, along with a steady $2.3-plus billion in operating income per quarter from its cloud business, Amazon Web Services, which gives the company “significant runway to continue with its myriad, necessary investments,” said Charlie O’Shea, Moody’s retail analyst.
As in many cases, Amazon's competitors may be left in the dust. Walmart’s unlimited delivery subscription currently costs $98 a year, or $12.95 on a monthly basis. Shipt costs $99 for an annual unlimited delivery membership. Target offers unlimited Shipt deliveries over $35 for $99 a year. Instacart charges $99 for an annual unlimited free delivery membership.