Dive Brief:

• Amazon has announced that two-hour grocery delivery will be free for Prime members purchasing from Amazon Fresh, according to a press release sent to Grocery Dive. The grocer currently offers free two-hour delivery to Prime members from its Whole Foods stores.
• This will also eliminate the monthly fee of $14.99 that Prime members currently pay for Amazon Fresh. On Amazon's website, it says orders have to be at least $35 to qualify for free delivery. If the minimum is not met, customers will be charged a $9.99 delivery fee. Amazon will offer one- and two-hour delivery windows.
• The company is first offering the benefit to existing Prime members who already use grocery delivery. Other Prime members who want to get free grocery delivery but are not already subscribed can request an invitation and the company will alert them when they are able to shop. Amazon did not indicate when the service will become widely available.

Dive Insight:

This is a major move aimed at driving more people toward grocery delivery and building reliance on Amazon as a grocery provider. It could better position the retailer as it moves into the all-important holiday season, and as it prepares to open its reported brick-and-mortar grocery chain. 

Amazon has been focused on streamlining operations recently between Whole Foods and its own grocery properties. The company has integrated Whole Foods grocery items into Amazon.com rather than the Prime Now app and has been targeting Whole Foods shoppers with grocery delivery promos from the website. 

It has also rolled out Amazon Fresh to more cities this year, including Las Vegas, Houston, Minneapolis and Phoenix, after a bit of a hiatus. Amazon said in the press release that fresh grocery delivery through Amazon Fresh and Whole Foods is now available in more than 2,000 cities and towns, with plans for continued expansion.

Cutting the monthly fee will eliminate a major barrier to online grocery adoption and address customer concerns over the added cost for grocery delivery when they already pay to be Prime members. The cut is more substantial than some of the incremental price adjustments Amazon has made at Whole Foods this year. 

The dropped fee could also have a significant impact on Amazon’s bottom line. Moody’s analyst Charlie O’Shea noted in an email that the initiative comes on the heels of Amazon’s acknowledgment on its recent earnings call that next-day delivery costs for Q4 caused a $1.5 billion adjustment to earnings for the quarter. 

"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 said. 

This development raises the stakes among online grocery providers who previously were on par with Amazon grocery delivery. Now, Instacart, Shipt and other services could be seen as the more expensive option when compared to Amazon. 

Factoring in the cost of a Prime membership, Walmart is still the best bargain for grocery delivery. Its new unlimited delivery plan is $98 a year or $12.95 a month, and the company has been offering free grocery delivery through the month of October.