Amazon finally just proved it’s very serious about grocery delivery

For the better part of the last decade, Amazon Fresh has been an enigma. Now, with a change to its pricing this week, one thing has become clearer: Amazon is indeed very serious about this business.

The Amazon grocery service, which includes same-day delivery of both perishable and non-perishable groceries, got its start in Seattle in 2007 but didn’t launch in any other regions for six years.

When it finally did, opening up in Los Angeles in 2013, it came with a steep price: A $299 premium version of Amazon Prime called Prime Fresh, just for the right to buy fresh groceries for same-day or next-morning delivery.

In the three years since, Amazon has expanded Fresh to a few more markets: San Francisco, then the New York metro area and, more recently, Boston, Baltimore and London, too. Along the way, it tested out demand with months-long free trials for regular Prime members and even a pay-per-delivery model in parts of California.

But this week, it erased all of the experiments and instituted a single, more reasonable pricing model for the Amazon Fresh service: A monthly fee of $14.95, only available to existing Prime members.

If you do the math ($14.95 x 12 months + regular Prime’s $99 annual fee), the new rate is only $20.60 cheaper annually than the previous $299 Prime Fresh fee.

But the fact that it’s paid out on a monthly basis and isn’t more expensive as a result should be key.

“This positions Fresh much more favorably,” said Keith Anderson, a vice president at Profitero, an e-commerce analytics startup that works with retailers and consumer brands. “An incremental, annual $199, paid up front, was unprecedented and a huge hurdle for mainstream households to commit to, even if Prime members skew to affluence.”

Anderson and other industry insiders have wondered whether Amazon intentionally set the previous fee super high to limit demand while the company worked out the economics. An Amazon spokeswoman, not surprisingly, said that wasn’t the case.

“[T]he change in fee structure could be a sign that Fresh is stabilizing and poised for more aggressive expansion,” Anderson said. “This is supported by how prominently the new fee is being promoted on Amazon's homepage in markets where Fresh is available.”

To be sure, the service is still a luxury for most families even with the fee change. But if you are a family that has already switched over to online ordering for all of your groceries, Amazon’s service just got more attractive.

The monthly charge works out to less than $4 a delivery if you order groceries every week, which is cheaper than some competitors. Fresh orders can also include a wide range of non-grocery items from Amazon, and are delivered the same day they are placed if done by noon.

Amazon’s pricing announcement came just over a week after New York online grocer FreshDirect announced a $189 million investment to help it launch in new cities. Is the timing of Amazon’s announcement intentional? The company says no.

Code Commerce Series Returns to Las Vegas at Money20/20

Find out where retail and e-commerce are headed.


SHARE THIS
Previous Post
Next Post