Some people drive to the store for groceries. Margue Hunt logs in to Amazon Fresh.
A tech and retail industry veteran and single mom, she started using Amazon Fresh as her primary “supermarket” in 2008 as a way of saving time. Hunt participated in Amazon Fresh focus groups and took a particular interest in the service because of her experience in retail, including a past role as a consumer packaged goods specialist at Microsoft.
“Amazon Fresh became an institution in our house; even my teenage son has mastered maintaining our weekly shopping list online so that all I need to do is review and finalize the order for delivery,” she says.
Over the past 18 months, however, she has observed a decline in the level of service. Amazon Fresh prices are “now comparatively the highest in the region, quality and availability of products have sunken very low, and even on-time delivery has become problematic,” she says. “They have never accepted coupons, offered typical or introductory promotional pricing, and do not respond to Requests for New Items or carry the New Items you find advertised.”
“They have allowed themselves to become lower than a secondary market provider,” she says.
The last straw: The news on Friday that the company will require Amazon Fresh customers in the Seattle region to buy a $299/year Amazon Prime Fresh membership to continue using the service.
“I have been looking for an excuse to try Instacart, which is more of a personal shopping experience,” Hunt says. “And I am certain that Kroger and Wholefoods will welcome me back with open arms!”
Hunt is one of thousands of people in the Seattle region who have been using Amazon Fresh for years, long before people in the rest of the country. And she’s one of numerous Amazon Fresh customers who are responding to the news by saying they no longer plan to use the service.
Seattle as Amazon’s test market
Amazon started testing the service in Seattle in 2007 and spent six years honing its approach before starting to expand to cities including San Francisco, New York and Los Angeles. The company introduced the $299/year Prime Fresh subscription requirement at the outset in those new markets. The move to ultimately apply the same approach to Seattle isn’t a huge surprise, given the advantages of maintaining a consistent business model across the country.
But some of the longest-running Amazon Fresh customers are finding the change tough to swallow.
It isn’t helping that the company wasn’t very clear about what it was doing. Customers were notified in email messages Friday morning that Amazon Fresh in Seattle “will be available exclusively to Amazon Prime members.” For many, that left the incorrect impression that a standard Amazon Prime membership of $99/year would suffice.
In reality, Amazon representatives told GeekWire that a $299/year Amazon Prime Fresh membership will be required to continue using the service after June of next year. (The Prime Fresh membership includes all the benefits of a standard Amazon Prime membership, including free two-day shipping on Amazon.com orders.)
Longtime Amazon Fresh customers will be able to continue using the service for the next six months without a membership, with free delivery on any order above $50. (The threshold is $35 for free delivery in other markets; Amazon declined to comment on its long-term plans for delivery fees in the Seattle region.)
As part of the change, the company is promising “reduced prices on thousands of Amazon Fresh items.”
And as a consolation prize, of sorts, Amazon says Amazon Fresh customers in the Seattle region will be eligible for a free Amazon Dash device, a handheld gadget that lets customers add items to their grocery list using their voice.
The challenges of grocery delivery
Amazon is far from the first company to try grocery delivery. HomeGrocer.com, Webvan and others rolled out services and ultimately failed during the dot-com boom and bust.
The economics of grocery delivery are extremely difficult, given the complexities of fresh foods, the required infrastructure of warehouses and trucks, and the razor-thin profit margins. Sucharita Mulpuru, a Forrester Research e-commerce expert, told the Guardian in August, “AmazonFresh is an enormous money pit, that’s my opinion. At best a money pit, at worst a path to bankruptcy. It’s a tough, tough business. I don’t know if it’s a business that makes sense for them.”
Amazon CEO Jeff Bezos told the company’s shareholders last year, prior to rolling out the Prime Fresh subscription concept, that the Fresh team was figuring out the business model. “They’ve been doing a lot of experiments and trying to get the right mixture of customer experience and economics. I’m optimistic that the team is making good progress.”
One theory is that Amazon’s ulterior motive is to use Amazon Fresh to test and roll out the infrastructure for a broader next-day and same-day delivery network. Amazon Fresh trucks already deliver a variety of products, not just food. Board games, iPhone chargers, and even power tools are among the items that can be added to an Amazon Fresh cart.
As exemplified by Amazon’s push into delivery drones, the company is doing whatever it takes to improve delivery times.
But Amazon faces a growing number of competitors in the grocery delivery market. Safeway’s standard home delivery rate is $9.95 on orders of $150 or more. Instacart’s Express service offers free delivery on grocery orders of more than $35, for people who pay a $99/year membership fee.
Google Shopping Express, available in the Bay Area, Boston, Chicago, Manhattan and other markets (but not yet Seattle) offers free delivery on orders over $15 to people who pay for a $95/year membership.
Hunt, the longtime Amazon Fresh customer and retail industry veteran, sees an opportunity for Instacart, in particular, to capitalize on Amazon’s move by emphasizing its fleet of “personal shoppers” and customer engagement at the door as differentiating factors.
“Amazon Fresh is no longer interested in retaining its customers’ loyalty,” she says, vowing to vote with her feet and dollars by using a different service.