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Will $100 Be the Sweet Spot for Free Amazon Fresh Deliveries?
In February, Amazon hiked the minimum purchase Amazon Prime members have to make for free grocery deliveries from $35 to $150. Last week, the threshold was lowered to $100.
Amazon said in a press release, “We’re always looking for ways to make grocery shopping easier, faster, and more affordable for our customers and this enhanced benefit does just that.”
In raising the threshold in February, Amazon said the change was made in order to hold prices down amid investments.
A $3.95 additional fee had been required for orders between $100 and $150. All other delivery fees remain the same, including $6.95 for orders of $50 to $100 and $9.95 for deliveries under $50.
An internal Amazon document attained by Business Insider stated, “We’re always listening to customer feedback and looking for ways to make shopping for groceries easier, faster, and more affordable. As part of that, we continuously test our delivery models to see where we can make adjustments, and recently received positive feedback from customers when we piloted this change in select cities.”
Last year, Amazon also raised the price of annual Prime memberships to $139 from $119.
Grocers continue to grapple with a variety of schemes to cover the costs of grocery delivery, especially managing logistics around perishables. Amazon Fresh’s $100 threshold remains higher than the average minimum of $35 most grocers set to qualify for free delivery.
A Walmart+ subscription ($98 a year) offers free same- or next-day grocery delivery with a minimum purchase of $35 in addition to perks such as fuel savings and access to free Paramount+ and ad-free Pluto TV.
Kroger’s Boost subscription program ($99 annually) offers free same-day delivery on grocery orders of $35 or more. Boost members okay with getting next-day delivery of their groceries only pay $59 a year.
Target’s Shipt membership offers free same-day delivery for orders over $35. Albertson’s FreshPass subscription program ($12.99 monthly or $99 yearly) offers complimentary delivery for orders over $30 plus special credits and rewards tied to purchases.
Instacart, used by many grocers, charges a delivery fee of $3.99 for same-day orders over $35, but it also includes add-on fees for heavy orders, alcohol service, and long-distance driving (when a driver travels over 30 minutes), as well as a corporate service fee. Instacart+ members ($99 per year) get free delivery on orders over $35 and lower service fees.
Some grocers charge higher prices online than in store, and coupons aren’t always accessible for those choosing delivery or pickup.
A survey last year from ChaseDesign found that the number of shoppers using grocery delivery had declined 24% year over year as comfort with in-store shopping returned with pandemic concerns easing. The primary issue with grocery delivery was found to be high fees, cited by 44% of respondents in the 2022 survey versus 34% the prior year. Other complaints about home delivery included wrong or missing products (cited by 36%), quality of picked products (32%), and products arriving damaged (29%).
Discussion Questions
Will reducing its threshold for free delivery to $100 from $150 help make Amazon Fresh more competitive around grocery delivery? What are your overall thoughts about the value of grocery-delivery subscription programs and what the free-shipping thresholds and other perks should be?
Poll
Loading …BrainTrust
Katie Riddle
Global Retail Strategist, Verizon
Rachelle King
Retail Industry Thought Leader
The higher threshold did not go down well among consumers, especially at a time of very high inflation in grocery. From what we can see in our data, it also seemed to be holding back volume growth and customer frequency. Amazon has a big grocery business but it is on the back foot compared to Walmart and others so is tweaking things to drive success. Of course, the elephant in the room is that for most grocers, online delivery in food is a broadly unprofitable venture. This is all about a land grab for market share and customer dollars rather than a quest for profits.
I believe that this has been a fine-tuning exercise to find “the sweet spot” where customers will tolerate a fee, and where the company doesn’t lose money with each delivery. The Important thing here is that Amazon is watching the results, not just whimsically raising and lowering fees.
Making free delivery more affordable will make Amazon Fresh competitive in time for holiday feasts. Reducing the threshold to $100 encourages big e-grocery baskets and makes Amazon accessible to more consumers.
A comparison of grocery delivery thresholds suggests Amazon Fresh targets consumers with more disposable income. Amazon’s minimum order amount for free e-grocery delivery is triple rivals’ thresholds.
I’m not sure that this change will move the needle for Amazon. They really need to be aggressive about this if they want to buy market share. Amazon has two hurdles to navigate: they’re not perceived as a grocer with the same credibility that Walmart, Kroger, or others are. Second, even at $100.00, they’re really expensive compared to the competition. Higher fees, starting with less market share, not a great formula for growth.
Let’s see… $99 a year for free deliveries from Walmart (plus all the other perks) or $100 per order for free delivery (plus $139 a year for Prime membership)? You have to really love Amazon Fresh or Whole Foods to make that make sense.
The $50 difference won’t make much of a difference to the Amazon customers who currently use this service, but it won’t move the needle for the rest of them.
I think this will move the needle for current customers but not enough to steal market share from similar companies. Amazon users will be happier since the $100 threshold is a bit easier to reach on an average shop.
How many pickup and delivery services can any one geographic area support? Between people (Uber + Lyft) and products (Amazon + Walmart + other) and food (Doordash) that’s a lot of vehicles on the road. Efficiency will one day win the game, so what kind of consolidation and teamwork is it going to take to make this all work financially? It’s hard to see Amazon teaming up with anybody. And it’s hard to see Walmart extending their hand to the other grocery store down the mall. Hopefully pragmatic logistics and economics will drive an efficient solution for all parties some day. All these different money losing delivery services are making my head spin.
Amazon has responded to the customer feedback, making grocery shopping more affordable and aligning with or surpassing rivals’ minimum purchase requirements for free delivery. Certainly! by reducing the free delivery threshold from $150 to $100, Amazon Fresh aligns closely with the industry average. For instance, take Walmart+: for $98/year, customer can get free grocery delivery with a $35 minimum purchase, plus fuel savings. Grocery delivery subscriptions should offer convenience, extra perks, lower fee and making it affordable with fair value.
The second highest reason cited for leaving the service was incorrect or missing items. If a customer is consistently experiencing this issue, the service no longer becomes a convenience and the value will not be there regardless of the lowered threshold. While they need to be conscious of how they compare to competition, I would spend a significant amount of effort understanding what is needed to improve the overall service to increase the value of utilizing the service. Otherwise, they will reduce the threshold, and consumers won’t care because they have had too many mistakes with their orders.
Usually Amazon sets the bar. Not so in this case. This move offers little competitive advantage or savings ($3.95) for the customer. The last mile costs will continue to plague all food retailers but this action by Amazon won’t move the needle.
Going forward, consumers seem to tolerate subscriptions over per delivery charges. Ironically, Amazon has the most expensive subscription & delivery programs & this minor tweak will make no significant difference.
With a threshold of $100, it feels Amazon is in a “play it safe” mode mostly to cover costs, and not thinking broadly about the broader financial upside as to lifetime shopper value, or asserting more of the brand goodwill they’ve built in Prime membership.
$35 is unprofitably too low, a threshold most any shopper can quickly hit in their stores. But at around $75-$85, that customer is doing a larger, full shop, and will be the more profitable ones. At that price point, you have a chance to pull more shopper spend from conventional stores.
So curious, is this to get by to cover costs, or capture marketshare and shoppers for the long-haul?
What’s the margin on (even) $100 ?? $5? $10? How can a company support “free” off of this (when the true cost of the delivery is likely $20 or more)? What do I think of “free” (in general): collective insanity that we’ll wonder some day how retail survived (I’m assmuing it will).
Amazon minimum of $100 for free delivery is not competitive with their respective peer group. To be clear, they do not intend to be competitive. Standard delivery minimums are well known and yet, Amazon is not even close.
The fact that the price has come down from $150 after a few months is an indication of Amazon simply testing elasticity. Will $100 work? If they are shooting for the moon and to remain uncompetitive then perhaps $99 would have been more compelling.
With current inflation, consumers are regularly looking for the best/most convenient deals on the market. By lowering the threshold for free delivery, Amazon is making it easier for customers to engage with their delivery service. When compared to other delivery brands like Instacart or DoorDash, where there are often fees involved in order to have goods delivered, it gives them a competitive edge. In today’s current economy it’s not hard for customers to reach $100 in spend in one grocery trip.
More broadly, offering such services to consumers is now more table stakes than an added bonus. Consumers have demonstrated time and again in recent years that they want to be able to shop when, where and how they want. These fees are in-line with both the price point and convenience that competitors provide, and are part of the convenience offered by an Amazon Prime membership.
I think Amazon Fresh’s decision to reduce the free delivery threshold from $150 to $100 is a smart move to enhance its competitiveness in the grocery delivery market. By making it more affordable for customers to access free deliveries, they can attract a broader customer base. It’s crucial in today’s competitive landscape to remain responsive to customer feedback and changing market dynamics.
Grocery-delivery subscription programs are valuable for the convenience they offer. The key lies in striking the right balance between free-shipping thresholds and added benefits. Amazon’s adjustment is a positive step in this direction. They must continue to align with customer preferences, just as other services like Walmart+ and Kroger’s Boost have done by offering lower thresholds and extra perks. The ultimate goal should be to make grocery shopping easier, faster, and more cost-effective for the benefit of customers.