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Investors Business Daily
Investors Business Daily

Amazon's Grocery Push Takes 'Step Forward' With New Subscription Option

Amazon on Tuesday launched a new grocery subscription option for members of its Prime service. One Amazon stock analyst called the offering an "important step forward" for the tech behemoth's broader grocery strategy.

For an additional $9.99 per month, Amazon Prime members can sign-up for unlimited grocery delivery on orders worth more than $35 from Whole Foods Market, Amazon Fresh and other grocery retailers on the platform. Customers with a registered EBT card used for government food assistance can get the same grocery subscription without a Prime membership for $4.99 per month, Amazon said.

The new product continues Amazon's push into online grocery shopping, where it is less dominant compared to most other categories.

"We think today's announcement is an important step forward in the company's broader strategy and should help Amazon capture incremental share, particularly in perishable categories where the company has struggled historically," wrote Wedbush Securities analyst Scott Devitt in a client note following the announcement.

Amazon Stock: Trailing Walmart In Digital Groceries

The subscription includes one-hour unlimited delivery at no additional cost and unlimited 30-minute pickup options. It will be available for Prime users in more than 3,500 cities and towns across the U.S., according to Amazon. Amazon piloted the subscription option late last year in three cities: Columbus, Ohio; Denver and Sacramento, Calif.

The tech giant has long been focused on winning its share of the massive grocery market. In 2017, it bought Whole Foods for $13.7 billion. But Amazon has been adjusting its grocery strategy in recent months. Late last year, Amazon announced that customers will no longer need an Amazon Prime membership to order groceries from Amazon Fresh for delivery or free pickup.

But Amazon is not the leader in the online grocery market at this point. The research firm eMarketer projects Walmart will capture the highest percentage of digital grocery sales this year, at 27%. Amazon is projected to capture 18.5% of sales — totaling $40.5 billion — in 2024, according to eMarketer. While in-store shopping is still more popular, digital sales for groceries are growing. EMarketer projects that digital sales will make up about 13.7% of the $1.6 trillion U.S. grocery market this year.

Grocery Focus

In his annual letter to shareholders earlier this month, Amazon Chief Executive Andy Jassy highlighted the company's grocery efforts. Newly built same-day fulfillment warehouses could change how customers use Amazon for groceries, he wrote.

"What if we used our same-day facilities to enable customers to easily add milk, eggs, or other perishable items to any Amazon order and get same day?" Jassy wrote. "It might change how people think of splitting up their weekly grocery shopping, and make perishable shopping as convenient as non-perishable shopping already is."

In his note to clients, Devitt said the new subscription option is "significantly more affordable" than Amazon's existing fee structure. Under that system, Amazon charges fees between $6.95 and $9.95 for Amazon Fresh orders under $100. Delivery is free on orders worth more than $100.

On the stock market today, Amazon stock gained 1.3% to close at 179.52. Shares of online grocery delivery firm Instacart fell 7.4% to close at 33.42. Walmart, meanwhile, fell 1.73% to close at 59.09.

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