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August 26, 2024
Will New Grocery Delivery Subscription Options Help Amazon?
Amazon is enhancing its grocery delivery options with new subscription plans for Prime and Prime Access members that improve their service options. These options are not automatically included with Prime.
Prime members can choose between a $9.99 monthly plan and a $99.99 annual plan, which provides unlimited grocery delivery on orders over $35 from Whole Foods Market, Amazon Fresh, and various local retailers on Amazon.com. According to Amazon, this subscription “pays for itself after just one delivery order per month.”
For Prime Access members, a new $4.99 monthly subscription offers similar delivery benefits without requiring a Prime membership. This option is aimed at improving grocery access for low-income customers and includes features such as one-hour delivery windows and free 30-minute pickup. In a press release, Amazon stated, “We have many different customers with many different needs, and we want to save all of them time and money so they can focus on what matters most.”
The e-commerce retailer added, “Since launch, we continue to see strong sign-ups for the grocery subscription and a positive customer response. Customers see immediate value in the subscription as it saves them money on grocery delivery fees and makes their grocery shopping experience more convenient.”
Amazon’s grocery delivery subscription, which first launched back in April, includes one-hour delivery slots at no additional charge in select areas, unlimited free 30-minute pickups for any order size, and priority access to Recurring Reservations for weekly grocery orders. Amazon also offers a free 30-day trial of the monthly subscription and a two-month free trial of the annual plan.
Forbes believes that grocery is “the market Amazon just won’t give up on.” Despite the lukewarm reception of Amazon Fresh stores and the scaling back of its “Just Walk Out” technology, Amazon has revisited a strategy from its core playbook: subscriptions.
This approach may be part of the retailer’s efforts to gain share and better compete with Walmart, which captured 37% of the U.S. online grocery market in Q2 of 2024.
According to eMarketer, Insider Intelligence projected last November that Walmart’s online grocery sales would reach $58.92 billion by the end of 2024, surpassing Amazon’s $40.50 billion by over $18 billion. This will give Walmart an expanding 26.9% share of the online grocery market, compared to Amazon’s shrinking 18.5% share.
“Amazon is still trying to figure out how to compete with Walmart in the grocery space, both online and offline,” Brian Lau from Insider Intelligence stated at the time. “Whole Foods is still a key player in the premium segment, but it lacks mass appeal. Meantime, the company has paused the expansion of Amazon Fresh stores until it finds the right strategy. For online groceries, Amazon will reportedly be streamlining its shopping experience across its different brands and will be offering Amazon Fresh deliveries to non-Prime users in certain cities. A bright spot is that Amazon still boasts the most rounded out logistics network among its competitors.”
Per Grocery Dive, Amazon has navigated a trial-and-error approach with its grocery operations over the past year. However, despite challenges, the introduction of these two grocery delivery subscription plans just months apart highlights the areas where the company is finding success. With strong initial sign-ups and positive feedback, these subscription plans could help Amazon better compete against Walmart and other rivals.
As Amazon continues to evolve its grocery services, the success of these new plans will likely be a key factor in shaping its future strategy in the grocery space.
Discussion Questions
How do subscription-based grocery delivery models affect consumer loyalty and long-term market viability?
With Amazon’s push into grocery delivery, how can technology and data analytics improve personalization and efficiency in the sector?
As Amazon competes with Walmart, how might subscription grocery services influence industry trends and consumer expectations?
Poll
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This is part of Amazon’s strategy to grow its online grocery share. Those with a paid subscription are more likely to turn to Amazon or Whole Foods for their online grocery needs because they don’t need to consider the delivery costs for each order. This works well enough on a monthly basis, but an annual fee is even more compelling as, once paid, it’s out of mind.
The big issue is that Amazon’s offer appeals mostly to those who already shop its proposition. I am not sure it is all that good at winning over new shoppers. This comes down to the usual factors: the Whole Foods offer is limited and expensive, Amazon’s dedicated grocery offer is partial. In other words, the real key to growth is to get the grocery proposition right rather than fiddling around with membership options. Despite Amazon’s efforts, Walmart is still winning the online grocery war.
In my opinion, consumers are drowning in a fog of so many food delivery services with so many membership levels and varieties of services. Now Amazon presents even more confusion.
With Amazon entering the food delivery space, customers now have to navigate another platform with its own unique set of membership perks and pricing structures. This adds to the already overwhelming choice of services like DoorDash, Uber Eats, and Grubhub, making it harder for consumers to decide which service best fits their needs. Additionally, Amazon’s vast logistics network could disrupt existing market dynamics, further complicating the landscape.
In the long term, Amazon’s entry into the food delivery market could lead to increased competition, potentially driving down prices and improving service quality.
However, it might also result in smaller, local food delivery services struggling to survive. Ultimately, this could reduce diversity and choice for consumers, leaving fewer, larger players dominating the market. Amazon might face significant regulatory challenges as it enters the food delivery market. Antitrust concerns could arise, given Amazon’s already substantial market power in various sectors.
Additionally, there could be increased scrutiny on labor practices and data privacy issues, which are critical in the gig economy.
This could ultimately lead to higher prices for consumers and a decrease in competition, which could have a negative impact on the grocery industry. But time will tell and we shall see.
One potential regulatory challenge Amazon might face is increased antitrust scrutiny, as regulators may be concerned about the company leveraging its existing market dominance to stifle competition in the food delivery sector.
Additionally, Amazon could encounter regulatory hurdles related to labor practices, especially in light of recent scrutiny over gig workers’ rights and working conditions. Moreover, data privacy issues could become a focal point, with regulators closely examining how Amazon collects, uses, and protects consumer data within its food delivery operations. Db
For the Whole Foods customer, this extra fee is a non-factor; but for standard Prime members watching their grocery budget, Amazon needs to differentiate itself from all of the other food delivery services. I would recommend they offer it at a discount for people that consistently use the Subscribe & Save option, thus creating lock-in of steady consumables.
Getting back to Question #…well I guess it’s really #0, since it’s the one in the title: that depends on what Amazon wants out of grocery; is it a business or a laboratory (or maybe just a hobby)? The answer seems to vary post-to-post and week-to-week; those who follow my comments on online grocery will realize I don’t see it consistently profitable as it currently exists (within the Amazon world and beyond). That hasn’t changed, and if Amazon thinks this will do it, I disagree. OTOH, if it’s just a learning experience, it might have much to offer. And, of course, it always does wonders for the P/R dept.
As most grocery shopping is still done in store, subscription based grocery delivery still has room to grow, especially for Amazon.
Prime members expect a lot from Amazon. And, Amazon progressively charging Prime members a new fee for every service brings into question the overall value and benefit of Prime membership.
Oddly, with subscription based grocery, Amazon is competing with Walmart and Walmart is competing with Amazon. However, as it stands today, it’s as likely that Amazon will outpace Walmart in grocery as it is that Walmart will outpce Amazon in ecommerce sales.
Ecommerce grocery shoppers look for retailers they know and trust for grocery more so than for office chairs, for example. By default, Walmart offers more grocery stores than Amazon which equates to more experiences and trust when it comes down to consumers being picky about bananas.
Even with the strong presence of Whole Foods, there is limited scale for Amazon as the article states that Whole Foods lacks mass appeal. This is likely because Whole Foods lacks mass brands and mass prices; albeit, by design.
Between what seems an increasingly marginalized benefit of Prime Membership and Walmart’s equally hard push on subscription grocery, Amazon may have some initial wins based on marketing of grocery subscriptions but long-term, they still have work to do.
Walmart’s image in the eyes of the consumer is one thing – price. They consistently get poor marks in nearly every aspect of the food shopping experience (and I’ve done hundreds of studies in markets throughout the country). Amazon also has many limitations when you move to their e-commerce offerings based on our past national research and I’d agree, there is much work for them to do there when it comes to actually delivering on the food shopping experience, but they do get a lot of credit for the e-commerce experience touchpoints. Will be interesting to watch this situation.
The subscription service is compelling in offering substantial delivery cost savings for those who order on a weekly basis, which in itself will drive more loyalty.
The challenge for Amazon is the relatively limited grocery assortment compared to larger rivals, market reach and the higher price points of Whole Foods.
The outcome at this stage in Amazon’s foray into grocery will be likely be incremental gain in new customers and a more substantial gain in subscribers from their existing grocery customers.
Subscription fatigue is rearing its head as consumers review their monthly budgets and realize just how many they currently have and how much they are paying every month. Often, it’s a wakeup call, when consumers look at the bank statement and notice the fees ending in the dreaded .99 cents. Perhaps Amazon should start with core food offerings, operational enhancements and value-add pricing strategies vs lab testing a new subscription fee every other month.
The data in today’s discussion make little sense. Whole Foods is the core of Amazon Grocery, and Amazon Fresh is rounding the error to WF.
If the online grocery share comparison in the discussion, 26.9%18.5% for Walmart vs. 18.5% for Amazon, is correct, Amazon should double—or even triple—down on online grocery sales. Walmart leads the country in terms of grocery share. Whole Foods, with a low single-digit share, doesn’t make the top 10.
What I see in Amazon’s subscription efforts is consistency in their thinking. Make Amazon so easy that shopping for any Amazon (or watching TV) is so top-of-mind that loyalty is a thoughtless process.
Subscription-based grocery delivery deepens loyalty by allowing customers to outsource their weekly habits.
Grocers gain incremental revenue and more shopper data insights, which can help to refine their offerings and sell ads to brands across their retail media networks.
The battle for online grocery delivery membership is about more than a retailer’s share of the online grocery market, it’s also about their share of the rapidly growing and highly profitable loyalty data business (e.g. Walmart’s Connect & Luminate, Amazon Ads, Kroger Precision Marketing, Target Roundel, etc.). Online grocery shoppers leave a very valuable data trail. This is one of many reasons Walmart has leaned so aggressively in the battle, combining its grocery and low price leadership positions with multiple, very easy ways for consumers to trial Walmart+ (there are many “first year free” options with your cell phone or credit card companies). Fortunately for Walmart, their strategy is working and they are gaining HH share – particularly among affluent HHs. Meanwhile Amazon is still learning how to compete in the stores and making headway at Whole Foods by lowering prices and broadening assortment/appeal. But Amazon has been unable to translate their general merchandise online order and delivery expertise into grocery. Their challenge appears to be 30% a technical/process related, and 70% a brand equity mismatch. Consumers don’t think “grocery” when they hear Amazon, and they don’t think “delivery” when they hear Whole Foods. The change in membership tiers doesn’t address either challenge, so I don’t think it will do much to reverse the declining share issue.
In retail, when you implement a winning strategy, the competition studies and copies it as fast as they can. In this case, a rare occurrence of Amazon reacting to a competitor’s success- Walmart has killed with the Walmart+. 37% of the inline grocery market, and the speed they got there is astonishing. These plans feel more like Amazon playing defense to keep what they have. I don’t know that the Whole Foods brand will be great for growing market share, especially in this era of price sensitivity in the grocery sector.
Amazon (and many other retailers who sell groceries) are realizing the cost of doing so. The subscription model subsidizes the cost of picking, packing, and delivering. Amazon (and others) are finding the price point customers are willing to pay. And they will. Our annual CX research proves that, year after year, convenience is so important to customers that they will pay more for it.
Once a customer pays and starts using a service that provides reliable delivery, they get into the habit of using it on a regular basis. In addition, customers don’t want to waste their money, so they are less likely to go to a competitor when they have already paid for a service. This is what retailers like Amazon are hoping for.
As long as they deliver (no pun intended) on what they promise, customers will keep coming back again and again.
Home delivery is here, home delivery is here, home delivery is here….and chains will be trying to make this work for a long time. This initiative is simply another idea in what has been and will continue to be a long term march from the grocery store to the home, and the real issue hidden behind all these announcements is people prefer to shop and see what they are getting-if they shop at all, since so many people just eat out all the time.
I agree that many people still prefer the experience of shopping in person, where they can see and select their items firsthand. While delivery services offer convenience, there’s something about choosing your own produce and being able to inspect what you’re buying that resonates with many shoppers.