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With New Fee, Amazon Risks Losing Online Grocery Shoppers To Competitors

As many grocery delivery services compete to offer the lowest prices, Amazon is taking a very different approach. The company informed shoppers on Monday (Aug. 2) that it is adding a $9.95 service charge for Prime members ordering from Whole Foods Market in five U.S. cities, where previously these deliveries were included with customers’ Prime memberships for orders over $35, Bloomberg reported. The company told those who received the notice that the fee, which will be imposed beginning Aug. 30, will go toward covering operational costs in an effort to keep per-item prices low.

Read more: Amazon Adds Delivery Fee For Prime Customers Ordering From Whole Foods

The move goes against broader industry trends, with many grocery delivery services seeking to woo shoppers by eliminating additional fees. Walmart, for instance, offers free grocery delivery to Walmart+ members. Amazon itself made headlines when it made its Amazon Fresh grocery delivery free for Prime members in 2019.

See also: Walmart+ Leverages Grocery Delivery; Gains 8 Million New Paid Subscribers

Amazon Fresh Becomes Free For Prime Members

While these national and multinational giants have the advantage of scale when it comes to eliminating grocery delivery fees, newcomers to the space are also making moves to attract price-conscious shoppers with no-cost deliveries. Take Jokr, a rapidly expanding startup that delivers groceries in under 15 minutes fee-free, currently operating in parts of Latin America and in New York City, which recently raised $170 million in Series A funding. The service makes up for the cost by offering exclusivity to the brands from which it buys, Jokr Co-Founder Zach Dennett told Karen Webster in a recent interview.

Similarly, eGrocer Farmstead uses its predictive artificial intelligence (AI) software to optimize its spending, eliminating waste and allowing the company to keep costs low and deliveries free.

“The ability to predict means that we control the experience — and the more the experience is under our control, [the more] we can deliver customers a phenomenal experience, and the more customers get a phenomenal experience, the more they tell their friends,” Pradeep Elankumaran, co-founder and CEO of Farmstead, told PYMNTS. “And it’s a pretty nice flywheel — as more customers show up and our margins improve, we have the option of lowering prices to increase even more customers.”

Read more: No Joke: Jokr’s 15-Minute Grocery Delivery Out To Change Consumer Shopping Habits

eGrocer Uses Predictive AI To Lower Prices And Boost Margins

It would be one thing to make this move while the online grocery space was consolidating, with Amazon having already established a secure place in the category. However, online grocery is currently highly crowded, with newcomers entering every month with tons of funding at their disposal. In the last month, venture capitalists have been backing online grocery delivery startups hand over fist, funding them by the millions, tens of millions, and even hundreds of millions.

You might also like: VCs Risk Creating eGrocery Bubble

With each of these startups comes a unique value proposition — the best-sourced ingredients, the most user-friendly experience, the quickest order fulfillment, the lowest carbon footprint, and the list goes on. For Amazon, one of the factors setting it apart from some of the other leading providers was that it could leverage its massive logistical network to fulfill orders for free. Now, with this delivery fee pilot, which will run in the Boston; Chicago; Manchester, New Hampshire; Portland, Maine; and Providence, Rhode Island markets, the company risks alienating the Whole Foods delivery customers it has gained since the start of the pandemic.

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