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Amazon Fresh says that it raising the minimums for free deliveries of grocery products, saying that shoppers now will have to spend more that $150 to get free delivery.

From The Information:

"Beginning Feb. 28, Amazon will charge a $9.95 service fee on two-hour Amazon Fresh deliveries under $50, a $6.95 fee for orders between $50 and $100 and a $3.95 fee for deliveries between $100 and $150 … The company also said it will let customers receive deliveries within a six-hour window for a reduced fee, though it did not provide details … Currently, Amazon charges a $4.99 fee on two-hour Fresh orders under $35 or $50, depending on the market. For deliveries from Whole Foods Market, Amazon charges a $9.95 service fee regardless of order size."

The Information also provides this context:

"The fee increase comes after Amazon last week laid off employees in its retail division, including some who worked on Amazon Fresh, as part of 18,000 company-wide cuts. The company has also put openings of new Fresh physical stores on hold in the U.S. since September, The Information previously reported."

From Bloomberg:

"Groceries are the most frequent shopping trip for most households. Amazon has long been working to crack that market, following in the footsteps of rival Walmart Inc., which grew into the largest U.S. retailer in part by adding groceries to its supercenters.

Amazon started selling groceries online in 2007. A decade later, it bought Whole Foods to jump-start its efforts.

"Amazon tacked on home delivery from Whole Foods shelves, but the partnership has delivered mixed results to date. The company also operates the chain of Amazon Fresh-branded grocers, opening dozens of stores around the U.S.

"Amazon and Whole Foods together account for about 4% of the U.S. grocery market, analysts with UBS said in a research note this week, making the company the nation’s fifth-largest food retailer, behind Walmart, Kroger Co., Costco Wholesale Corp. and Albertsons Cos. Walmart accounts for 22% of the market, the UBS analysts estimate."

Engadget writes that a company spokesperson said that it is 'introducing a service fee on some Amazon Fresh delivery orders to help keep prices low in [its] online and physical grocery stores as [it] better cover[s] grocery delivery costs and continue to enable offering a consistent, fast, and high-quality delivery experience.' The spokesperson continued: 'We will continue to offer convenient two-hour delivery windows for all orders, and customers in some areas will be able to select a longer delivery window for a reduced fee.'

"Based on that statement, Amazon could jack up grocery prices if it doesn't charge delivery fees. But as it is, customers will end up paying more anyway — a lot of people can't afford its $150 minimum requirement these days, and those who can may not be able to consume everything they bought before they go bad or are no longer, well, fresh. Amazon has started notifying customers via email about the new service fees, and some social media users are pointing out how outrageous the price jump is to get free delivery.

"Customers have come to rely on Amazon Fresh for grocery deliveries when the pandemic started, including folks on the government's Supplemental Nutrition Assistance Program (SNAP) program. People who have SNAP Electronic Benefits Transfer (EBT) debit cards can order via Fresh even without a Prime subscription, making it a good (and in some cases, the only) option for people with disabilities. But now they'd have to pay extra on top of their purchase. According to Amazon's website, they can't even use their EBT cards to pay for the shipping fee and will have to provide another form of payment."

KC's View:

First of all, let's stipulate that when a company offers a service that has value - whether tangible or intangible - it is within its rights to charge for that service.  In fact, it could be argued that if a company offers a valuable service for free, in some ways it may be diminishing its value, not to mention creating the potential for friction if and when that service starts to cost its users more than originally charged.

It is entirely fair to suggest that this is a realization that Amazon is coming to rather late in the process - that by making delivery such a bargain, it created unreasonable, unsustainable expectations among the people who used it.  This isn't a small increase that Amazon is imposing - it is a major fee hike that is going to affect a lot of people at a time when inflation has dramatically increased the cost of food.  It throws into question, I think, a significant portion of Amazon's business model.

I joked here the other day that one of CEO Andy Jassy's job responsibilities must be to wander around Amazon's various buildings to see if he can find any spare change in lobby couch cushions.  Somehow that didn't seem so funny … or so unlikely … when this new story was reported.

I find myself wondering if Amazon's business model is under such stress that we're going to see changes to programs like Prime and Subscribe & Save, whether Amazon is going to look for ways to squeeze more money out of existing customers.  The Jeff Bezos premise always was to add services that would make customers more loyal, because more loyal customers would spend more money.  But maybe that's not enough.

Amazon may be rightsizing its business by laying off unneeded employees, eliminating extraneous initiatives, and charging more for the programs that it thinks merit such increases.  But in doing so, Amazon also is opening a competitive window for other retailers…

For Walmart, which continues to push its Walmart+ loyalty program.  For Kroger and Albertsons, which have their own approaches to innovation.  And for smaller retailers - including those that are workin with companies such as Instacart - that can begin to find ways to redefine the competition on their own terms.

It occurs to me that a long time ago, when Walmart got into the grocery business, it illuminated both the inefficiencies and the opportunities that existed within the traditional supermarket business, and in many ways the industry responded.  Many of the innovations being tested and employed by many grocery companies today have been prompted by Amazon's ambitious approach not just to retailing, but to the world at large.

I do think, however, that is not a moment for people to pull back in reaction to Amazon's current troubles.  There's no doubt that we're at a juncture where people and businesses need to be more thoughtful and strategic in their innovations, but I don't think this is a time for less ambition.  Rather, I think it is a time to drill down on what it means to be essential to shoppers … to be closer to customers than ever, more in touch with their aspirations as well as their realities.

It is time to rise to the moment, not drag the moment down.