Amazon yesterday announced that “customers in more than 1,000 cities and towns can now order fresh groceries with their Same-Day Delivery orders, with plans to expand to over 2,300 across the U.S. by year-end.:
Amazon said that the expansion “marks one of the most significant grocery expansions for Amazon as the company introduces thousands of perishable food items into its existing logistics network that is already optimized for speed and efficiency. Customers will have the option to order produce, dairy, meat, seafood, baked goods, and frozen foods, alongside the millions of items such as everyday household essentials, electronics, fashion, home and garden, and more already available for Same-Day Delivery on Amazon.com … For Prime members, Same-Day Delivery is free for orders over $25 in most cities. If an order doesn’t meet the minimum, members can still choose Same-Day Delivery for a $2.99 fee. For customers without a Prime membership, the service is available with a $12.99 fee, regardless of order size.”
Amazon said that the expansion follows successful tests in regions like Phoenix, Orlando, and Kansas City.
More context from the announcement:
“Already a go-to destination for grocery shopping for over 150 million Americans, Amazon generated over $100 billion in gross sales of groceries and household essentials in 2024, not including sales from Whole Foods Market and Amazon Fresh.
“The service complements Amazon’s existing grocery delivery offerings, including Amazon Fresh, Whole Foods Market, and a variety of local grocery and specialty retailers, giving customers multiple ways to shop for groceries based on their specific needs – from full grocery hauls to same-day convenience shopping that combines perishable food with everyday household essentials. Amazon will continue expanding this capability to additional cities and towns through 2026.”
Analysis from the Wall Street Journal:
“Amazon is the largest e-commerce company, but its grocery business hasn’t grown as fast as some rivals. Walmart’s online grocery business surpassed Amazon’s in terms of sales, according to estimates from eMarketer, which tracks e-commerce sales. With thousands of stores, and an army of drivers, the big-box giant can make same-day deliveries to more than 90% of the country.
“Amazon has been eager to find new ways to jump-start growth. Recent forays into healthcare, personal computing and physical stores haven’t generated the sort of market dominance that the company—and investors—have come to expect.
“Patience is wearing thin on Wall Street. When Amazon’s highly profitable cloud-computing arm reported slower growth than some rivals last month, the company’s shares dropped around 7%, as concerns mount about Amazon’s ability to keep growing.
“Amazon Chief Executive Andy Jassy told employees two years ago that the U.S. grocery market was worth $800 billion—and he wanted a bigger bite of it. In 2024, the American grocery sector was worth nearly $875 billion, according to market-research firm IBISWorld.”
From CNBC:
“Amazon has been retooling its grocery business over the past few years.
The company has tweaked its chain of Fresh grocery stores in a bid to attract more shoppers, and it opened up fresh food delivery to shoppers who aren’t Prime members.
“It’s also looked to highlight its growing business selling household staples such as paper towels, cleaning supplies, bottled drinks and canned food.
“In January, Amazon tapped Jason Buechel, the CEO of Whole Foods Market, the upscale grocer it acquired in 2017 for $13.7 billion, to lead its worldwide grocery stores business. Buechel announced in June that the company was bringing Whole Foods closer to the Amazon grocery umbrella as part of a reorganization. Previously, Whole Foods had remained largely independent from Amazon’s own grocery offerings.”
From Investopedia:
“Amazon’s announcement amounts to a ‘shot heard ’round the warehouse,’ Wedbush Securities wrote in a research note. The bank added that the move could weigh on delivery companies and retailers that have large grocery businesses.
“Investors sold off shares of delivery and supermarket companies Wednesday.
Instacart shares were recently down 12%, while DoorDash shares fell some 5%, Kroger shares dropped 4%, Walmart and Albertsons Companies shares dipped about 2%. ‘Along comes Amazon with an existing nationwide network of fulfillment centers and delivery trucks, [and] seems to have finally figured out how to store and fulfill perishables in a way to support same-day efforts,’ Wedbush analysts said.”
From MarketWatch:
“UBS analyst Stephen Ju, in a research note on Wednesday, called Amazon’s move a ‘directional negative’ for Uber and DoorDash. He said it would add ‘likely pressure on margins as this update raises the competitive intensity to their intraweek delivery efforts’.”
KC’s View:
Making deliveries in a timely and efficient manner is what Amazon does best – it is, at its heart, a logistics company. It makes sense for Amazon to extend that expertise to fresh foods, as long as it has the infrastructure in place to deliver on the value proposition it is making to shoppers.
The expansion of this service is not reflected in my Amazon home page this morning, and I will be curious to see how fresh foods are integrated into what already is a very crowded environment. I do think they’ll have to be careful about it – there is a point at which the website will tip over into being unnavigable.
I still think that at some point, Amazon is going to largely get out of the bricks-and-mortar grocery business, and focus on e-grocery, something at which it is far more accomplished. It’ll keep Whole Foods (unless somebody makes it an offer it cannot refuse), but it has shown neither the competence or the commitment to physical retailing necessary to succeed in this arena. I don’t think Amazon has the horses to compete with the likes of Walmart in the bricks-and-mortar, and so it makes better sense to run a different race on a different track.
Amazon probably isn’t at that point yet – I’m sure the company still has some formats and store designs in its back pocket that it plans to try, that it thinks could resurrect its dreams of dominating bricks-and-mortar. But physical grocery is a money suck, and if it can stick to both e-grocery and the licensing of its technology, this could all make it a lot of money with better margins.
I think I may be all alone out there with this prediction. I’m okay with that.
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