Amazon Turns to More Free Grocery Delivery to Lift Food Sales

SEATTLE — Amazon has yet to find the key to unlocking huge grocery sales. Now, the company is trying a new tack: free delivery for more people.

On Tuesday the company announced free two-hour grocery delivery for Prime members in more than 20 major metropolitan areas. The changes eliminate what had been a monthly $14.99 fee for people shopping on Amazon Fresh, its online grocery service that delivers milk, eggs, seafood and other perishable products from its warehouses.

The new delivery option is in addition to the free delivery Amazon offers to Prime members who shop at most Whole Foods Market stores. Both methods require a minimum purchase for $35 to have no delivery fees. Prime memberships typically cost $119 a year.

Amazon has long wanted to make headway in the $700 billion grocery industry — it is not only an immense market, but a category that customers buy with high frequency.

Amazon bought Whole Foods two years ago, by far its biggest splash in the industry. So far, though, the impact at Whole Foods’s physical stores and on Amazon’s bottom line has been modest. But the glimmers of hope Amazon has seen from buying Whole Foods has largely been from delivery.

“We made Fresh both available to more customers, and much faster, over the past year,” said Stephenie Landry, Amazon’s vice president of grocery delivery. Ms. Landry explained that while Whole Foods orders were fulfilled in the grocery stores, Amazon delivers its Fresh orders from small fulfillment centers located close to customers. “We have opened more of those over the past year, and that’s what enables us to offer free two-hour delivery,” she said.

Amazon Fresh sells a broader selection of branded products like Doritos or Coke that Whole Foods does not carry.

At a traditional grocery store, perishable items account for about two-thirds of sales. For Amazon, excluding Whole Foods, those fresh products make up just about 6 percent of food sales, according to a February report from Bain & Company.

After Amazon bought Whole Foods, traditional grocers have fought back aggressively. While Walmart, Kroger and others offer home delivery for a fee, they have been pushing ways for customers to order online and pick up groceries in their stores, an approach analysts say has been popular in part because it is free.

With its new announcement, Amazon is showing it is willing to spend heavily on delivery where its competitors have not, and make up the costs through other purchases made by Prime members, to undercut the value traditional grocers have been offering.

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Amazon has made fast delivery a key to driving more retail sales. Last week, Amazon already said it expected to spend about $1.5 billion this quarter on one-day shipping for Prime customers, and it is now adding free grocery delivery within two-hours to its spending spree. They are long-term bets that Amazon can change customer behavior and expectations in ways that will create more loyalty for Prime customers, who buy more, and more frequently, than non-Prime customers.

In July, The New York Times reported that Amazon was pursuing a new chain of grocery stores designed specifically with pickup and delivery in mind. In September, a local news outlet in Los Angeles reported that a “new-concept Amazon grocery store” was slated to open in November at the site of an old Toys “R” Us store.

Ms. Landry declined to comment on the new stores and whether they would be used as part of the free delivery push.

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