October 19, 2015
Will customers leave AmazonFresh over $299 membership fee?
From the very beginning, Amazon has been clear that following a free 30-day trial period, it would charge customers a $299 per year annual subscription to use its AmazonFresh grocery delivery service. In reality, users of AmazonFresh in many places kept having their free trial period extended so the annual membership didn’t really mean anything – until now.
According to reports, Amazon has informed customers in New York, Philadelphia and Seattle that they will now have to pay the $299 fee to continue receiving the service. This came as something of a kick in the head to customers in Seattle, for example, who have been AmazonFresh customers going back to as early as 2007 without having to pay a subscription. Customers in other locations including Los Angeles have been paying the annual fee, which is being marketed as an upgrade to Amazon’s Prime two-day delivery program that also includes perks such as streaming movies.
Photo: RetailWire
Prime customers who upgrade to Prime Fresh for AmazonFresh will have their memberships prorated. Orders over $50 will not include any additional delivery fees.
One of the interesting aspects of Amazon’s move is that it adds a fee when the site faces increasing competition in the online grocery market from pure-plays such as itself in FreshDirect, Door to Door Organics, etc. and a host of traditional and organic grocers using services such as Instacart and Shipt to deliver orders to customers.
As would be expected, unhappy customers took to social media to vent their frustrations with Amazon over the news.
Jonathan Fay tweeted, "I was willing to overpay on groceries for the convenience, but paying an extra $300 for the right to overpay is ridiculous!"
Katy Hollinswurf wrote, "Well, @AmazonFresh lost our household as a customer today. $299 for prime and free delivery on orders OVER $50? Yeah… no thanks."
BrainTrust
Keith Anderson
Founder, Decarbonizing Commerce
Recent Discussions
Discussion Questions
Do you agree or disagree with Amazon’s decision to require all AmazonFresh members to pay a $299 annual fee? What will be the likely impact on AmazonFresh’s business as well as others who compete with it in the online grocery?
Poll
As with all retail, those that come first set the precedent.
I’ve been using Instacart for six months now. It’s a $3.99 service fee per trip plus whatever tip you desire. They have all of my favorite grocery stores and now a pet store and Costco as well. The service is impeccable — truly, truly impeccable. So why would I now leave them to spend $299 to help Amazon figure out this new model?
We have a big rule about looking at every strategic opportunity through the trend lenses of the world, the people, the category and the shopper. I think Amazon may want to try this out.
Amazon has some customer data that presumably supports the move, but it strikes me as an unprecedented and potentially uncompetitive offer that shrinks the addressable market for the Fresh service. It’s especially interesting in light of the expansion of Prime Now, which is a much lower commitment.
With so many grocery/CPG programs in various stages of incubation at Amazon (Fresh, Prime Pantry, Prime Now, Dash, etc), at some point Amazon may need to simplify and consolidate.
OK, time for the me to chime in on this. First of all, consumers have been spoiled by the notion of “free shipping” and they expect free from AmazonFresh as well. As a supermarket owner, this concept of free delivery is insane, as it costs a good deal of money to do this. Amazon has to invest in special trucks with multiple temperatures inside the truck to protect the perishables, and need to have special insulated bags to get the perishables to the households. This is not like dropping off a leaf blower, which UPS can leave on the front porch, ring the doorbell, and leave.
Even though Amazon is a future competitor in this venture, they are realizing that an annual fee of $299 is reasonable just to cover their costs. Consumers just can’t see this and don’t understand the difficulty of doing this right and, above all, safely. Instacart has added costs into their pricing model plus a nominal charge to get the goods to consumers’ home, and if they didn’t they would be broke by now.
I know I will catch some flack from my fellow panelists as they may feel differently, but delivering FRESH food is complicated and expensive, and a fee must be charged to get it delivered or it just won’t fly. I charge a delivery fee for my catering service, and it is up front, not hidden, and my customers understand the convenience of not leaving their offices to get food for their meetings.
Thank you Amazon for holding your ground, as you actually are helping us out. There are supermarkets who struggle with this concept, and it only makes what I do easier in regards to delivering perishable foods to my customers.
Grocery delivery is not cheap. The key question is whether Amazon was making a profit before imposing the fee. If not, their financial model needed to be changed. Consumers will vote with their clicks. If they choose other delivery services Amazon may have to rethink its pricing.
I think Amazon is overestimating its brand loyalty. AmazonFresh customers will see the annual fee and quickly Google “grocery delivery, no-fee” and find somewhere else to shop — this could actually help drive business to smaller local markets that offer free delivery.
WHAT?
Younger people and city-dwellers may think that a $299 fee makes sense (hey, that’s almost a DOLLAR A DAY) but most of us who were raised by Depression-era parents think that’s a lot of money. And I don’t want someone to bring groceries to me … I want them to put it all away after I get home.
Will consumers be willing to bear the cost of shipping heavy items like milk and liquid detergent? It should be interesting to watch how this plays out.
I think Amazon will find that many consumers’ position is “if it’s free it’s for me, if I have to pay, no way.”
I’m with Tony on this one. Do you really think that Instacart can profitably deliver long-term for $4 per trip? Given how much Amazon is willing to lose money on retail ventures, the fact that they feel the need to charge $300 just as the entree to the service speaks volumes to me about how much it really costs to make grocery delivery happen.
Sure, consumers love free shipping and have come to expect it — clearly. But the reality is, we pay for it one way or another. And maybe it doesn’t seem like you’re paying for it right now, but there will be long-term consequences for coming to rely on a business model that is not sustainable. At some point, someone will have to pay the piper.
While it is absolutely true that delivering fresh foods has a cost, shoppers may not view $299 annually as a reasonable expense for the service (even if it is the real cost or still being subsidized to some degree by Amazon). This may push shoppers to try the competition, especially if it is true that they impose the fee when competition comes to town.
Try this — get up, go to store, buy fresh, go home. What the heck is going on? Who would:
- Trust a delivery guy to visit you house all the time when he/she is linked to or works for a huge non-local web service? Ever ask Amazon about how they hire people?
- Make loads of money, need to waste it and get free streaming, and feel good about wasting $299 more?
- Be a serious introvert and not get help?
- Be so in love with Jeff Bezos that they do not care what it costs?
- Not wake up and say “do I really need to be so busy?”
Wake up people. You Amazon “deliver me the world” people are just getting taken to the cleaners. And it will not end. You are targets for all simple sells — from Amazon to life insurance.
It sounds like this was a surprise to customers. And, the fee seems dramatic, at least from the outside. Give me the value proposition. Tell me how $299 is worth it. Prove it is MORE than worth it. Do that and I won’t complain (as much) about the fee.
The service that Amazon.com is providing is expensive to execute. I believe that most people recognize that. Convenience costs money. Again, most people recognize that. This service is not for everybody. Those that want it will pay. Just prove the value.
Perhaps Amazon is finding out that AmazonFresh just is one of the few things which does not work well with their business model. For many of us, even for convenience and for free delivery there are few people that we would trust to choose and pack up our specific fresh food orders. Unlike regular groceries fresh is a category of its own and very, very personal. This fee does not seem to me to be an unduly unreasonable one to charge for any company that is trying not to lose money on a service that requires perishable product, extra care, packaging and special equipment. But I think the majority of customers will not accept it, and few new ones will sign on. Maybe Amazon will not mind if the service dies a slow death.
My guess is that smaller or localized fresh food delivery companies who charge per trip will also need to charge more for their service before long in order to stay in business, but customers in general will prefer the “pay only when I use it” model more than the large lump sign-up and annual fee that Amazon has chosen.
I agree with the move in this respect: taking the idea of shipping costs off the table in terms of every time you order should be a priority for ANY online retailer. And Prime is an excellent way to do that. But Amazon needs to market this cost a little better; e.g. if you’re an avid user, you’re talking about 6 bucks a week. For my family, that $299 would be about half of what we normally spend with them without Prime, at least.
So, if it was marketed as 6 bucks a week at an average Prime user’s savings of ______, I believe it would go over without a whimper. But without that marketing, it could be a tough pill to swallow for many … initially.
I get a chuckle out of the QOD—do you “agree or disagree?” As if this is some kind of etiquette or public policy issue we need to vote on. Amazon (presumably) needs to charge this to stay profitable or become less unprofitable, perhaps. I see no more to it than that…well, maybe a little more. It’s a reminder that the great “success” of many of these businesses that are giving away things isn’t really that, and it can’t go on forever.
I agree with Tony. Amazon is in business to make a profit. The problem as I see it is the $299. fee. That seems to be an exorbitant number. Maybe they waited to long to pull the trigger on this. But I don’t want to be one to help offset past and future losses. I was one raised by depression era parents; andvalue the dollar too much to put it in Amazon’s war chest. I am as busy as the next person. But not that busy that I am willing to pay $299 to have my groceries delivered. By the way Tony, I can understand the delivery fee on a catering order and am willing to pay it to you as an individual businessman. But there is something about paying it to Amazon and the invisible non entity that is different to me.
Ultimately it comes down to how many customers will stay with the service once the subscription requirement goes into effect.
The $299 annual fee plus having to reach $50 with each order to avoid a shipping charge pretty much guarantees that the people who stick with AmazonFresh will be using the service as their primary grocer.
Based on my limited personal knowledge of people who have purchased from AmazonFresh, many use it among several grocery options and not as their primary place to purchase. Failure to convert these people to full-timers, so to speak, could cause serious issues for Amazon in its goal to expand the service.
The modern shopper likes to move around when it comes to their groceries—whether that means getting their meat from their local butcher, fresh bread from their local bakery, or making the trip in-store to purchase their produce. They aren’t committed to one store anymore and don’t feel they don’t need to be – the world is providing more and more options, thanks to grocers investing in Click & Collect/Curbside, as well as delivery solutions like Instacart and Google Express.
Put more simply, the modern shopper is all about choice. Flexibility. Convenience. Mobility. This just seems like a fundamental misunderstanding of the grocery shopper’s preferences.
AmazonFresh is essentially taking that choice away by charging $299/year, creating a scenario where the shopper would feel that hey can’t shop anywhere else after investing such a large sum of money. This is completely misaligned with how today’s consumers like to shop.
With their current model, I have a hard time envisioning success. But I wouldn’t discount them just yet. This is Amazon afterall, and changing a fee is an overnight tweak.
This is a convenience fee, that Amazon needs to survive in this model, and it really demonstrates that this is NOT a model that is reflecting consumer demand. Instead, it is a solution looking for a problem. The numbers of consumers willing to pay higher prices for having food delivered to them is not large enough to support a model like Amazon’s.
More Discussions
How Timely Is the Planned Lowe’s Website Renovation Focusing on Personalization?
Is Lowe’s being timely with its website reno, and is it right to be placed as…Should Costco Be Opening Members-Only Gas Stations?
Is this the right move for the warehouse club?As Boomers ‘Age Out of Peak Purchasing,’ How Can National Brands Retain Interest With Gen Z?
According to a recent First Insight study titled “Is Gen Z Still Choosing Your Brand,” while…
As with all retail, those that come first set the precedent.
I’ve been using Instacart for six months now. It’s a $3.99 service fee per trip plus whatever tip you desire. They have all of my favorite grocery stores and now a pet store and Costco as well. The service is impeccable — truly, truly impeccable. So why would I now leave them to spend $299 to help Amazon figure out this new model?
We have a big rule about looking at every strategic opportunity through the trend lenses of the world, the people, the category and the shopper. I think Amazon may want to try this out.
Amazon has some customer data that presumably supports the move, but it strikes me as an unprecedented and potentially uncompetitive offer that shrinks the addressable market for the Fresh service. It’s especially interesting in light of the expansion of Prime Now, which is a much lower commitment.
With so many grocery/CPG programs in various stages of incubation at Amazon (Fresh, Prime Pantry, Prime Now, Dash, etc), at some point Amazon may need to simplify and consolidate.
OK, time for the me to chime in on this. First of all, consumers have been spoiled by the notion of “free shipping” and they expect free from AmazonFresh as well. As a supermarket owner, this concept of free delivery is insane, as it costs a good deal of money to do this. Amazon has to invest in special trucks with multiple temperatures inside the truck to protect the perishables, and need to have special insulated bags to get the perishables to the households. This is not like dropping off a leaf blower, which UPS can leave on the front porch, ring the doorbell, and leave.
Even though Amazon is a future competitor in this venture, they are realizing that an annual fee of $299 is reasonable just to cover their costs. Consumers just can’t see this and don’t understand the difficulty of doing this right and, above all, safely. Instacart has added costs into their pricing model plus a nominal charge to get the goods to consumers’ home, and if they didn’t they would be broke by now.
I know I will catch some flack from my fellow panelists as they may feel differently, but delivering FRESH food is complicated and expensive, and a fee must be charged to get it delivered or it just won’t fly. I charge a delivery fee for my catering service, and it is up front, not hidden, and my customers understand the convenience of not leaving their offices to get food for their meetings.
Thank you Amazon for holding your ground, as you actually are helping us out. There are supermarkets who struggle with this concept, and it only makes what I do easier in regards to delivering perishable foods to my customers.
Grocery delivery is not cheap. The key question is whether Amazon was making a profit before imposing the fee. If not, their financial model needed to be changed. Consumers will vote with their clicks. If they choose other delivery services Amazon may have to rethink its pricing.
I think Amazon is overestimating its brand loyalty. AmazonFresh customers will see the annual fee and quickly Google “grocery delivery, no-fee” and find somewhere else to shop — this could actually help drive business to smaller local markets that offer free delivery.
WHAT?
Younger people and city-dwellers may think that a $299 fee makes sense (hey, that’s almost a DOLLAR A DAY) but most of us who were raised by Depression-era parents think that’s a lot of money. And I don’t want someone to bring groceries to me … I want them to put it all away after I get home.
Will consumers be willing to bear the cost of shipping heavy items like milk and liquid detergent? It should be interesting to watch how this plays out.
I think Amazon will find that many consumers’ position is “if it’s free it’s for me, if I have to pay, no way.”
I’m with Tony on this one. Do you really think that Instacart can profitably deliver long-term for $4 per trip? Given how much Amazon is willing to lose money on retail ventures, the fact that they feel the need to charge $300 just as the entree to the service speaks volumes to me about how much it really costs to make grocery delivery happen.
Sure, consumers love free shipping and have come to expect it — clearly. But the reality is, we pay for it one way or another. And maybe it doesn’t seem like you’re paying for it right now, but there will be long-term consequences for coming to rely on a business model that is not sustainable. At some point, someone will have to pay the piper.
While it is absolutely true that delivering fresh foods has a cost, shoppers may not view $299 annually as a reasonable expense for the service (even if it is the real cost or still being subsidized to some degree by Amazon). This may push shoppers to try the competition, especially if it is true that they impose the fee when competition comes to town.
Try this — get up, go to store, buy fresh, go home. What the heck is going on? Who would:
Wake up people. You Amazon “deliver me the world” people are just getting taken to the cleaners. And it will not end. You are targets for all simple sells — from Amazon to life insurance.
It sounds like this was a surprise to customers. And, the fee seems dramatic, at least from the outside. Give me the value proposition. Tell me how $299 is worth it. Prove it is MORE than worth it. Do that and I won’t complain (as much) about the fee.
The service that Amazon.com is providing is expensive to execute. I believe that most people recognize that. Convenience costs money. Again, most people recognize that. This service is not for everybody. Those that want it will pay. Just prove the value.
Perhaps Amazon is finding out that AmazonFresh just is one of the few things which does not work well with their business model. For many of us, even for convenience and for free delivery there are few people that we would trust to choose and pack up our specific fresh food orders. Unlike regular groceries fresh is a category of its own and very, very personal. This fee does not seem to me to be an unduly unreasonable one to charge for any company that is trying not to lose money on a service that requires perishable product, extra care, packaging and special equipment. But I think the majority of customers will not accept it, and few new ones will sign on. Maybe Amazon will not mind if the service dies a slow death.
My guess is that smaller or localized fresh food delivery companies who charge per trip will also need to charge more for their service before long in order to stay in business, but customers in general will prefer the “pay only when I use it” model more than the large lump sign-up and annual fee that Amazon has chosen.
I agree with the move in this respect: taking the idea of shipping costs off the table in terms of every time you order should be a priority for ANY online retailer. And Prime is an excellent way to do that. But Amazon needs to market this cost a little better; e.g. if you’re an avid user, you’re talking about 6 bucks a week. For my family, that $299 would be about half of what we normally spend with them without Prime, at least.
So, if it was marketed as 6 bucks a week at an average Prime user’s savings of ______, I believe it would go over without a whimper. But without that marketing, it could be a tough pill to swallow for many … initially.
I get a chuckle out of the QOD—do you “agree or disagree?” As if this is some kind of etiquette or public policy issue we need to vote on. Amazon (presumably) needs to charge this to stay profitable or become less unprofitable, perhaps. I see no more to it than that…well, maybe a little more. It’s a reminder that the great “success” of many of these businesses that are giving away things isn’t really that, and it can’t go on forever.
I agree with Tony. Amazon is in business to make a profit. The problem as I see it is the $299. fee. That seems to be an exorbitant number. Maybe they waited to long to pull the trigger on this. But I don’t want to be one to help offset past and future losses. I was one raised by depression era parents; andvalue the dollar too much to put it in Amazon’s war chest. I am as busy as the next person. But not that busy that I am willing to pay $299 to have my groceries delivered. By the way Tony, I can understand the delivery fee on a catering order and am willing to pay it to you as an individual businessman. But there is something about paying it to Amazon and the invisible non entity that is different to me.
Ultimately it comes down to how many customers will stay with the service once the subscription requirement goes into effect.
The $299 annual fee plus having to reach $50 with each order to avoid a shipping charge pretty much guarantees that the people who stick with AmazonFresh will be using the service as their primary grocer.
Based on my limited personal knowledge of people who have purchased from AmazonFresh, many use it among several grocery options and not as their primary place to purchase. Failure to convert these people to full-timers, so to speak, could cause serious issues for Amazon in its goal to expand the service.
The modern shopper likes to move around when it comes to their groceries—whether that means getting their meat from their local butcher, fresh bread from their local bakery, or making the trip in-store to purchase their produce. They aren’t committed to one store anymore and don’t feel they don’t need to be – the world is providing more and more options, thanks to grocers investing in Click & Collect/Curbside, as well as delivery solutions like Instacart and Google Express.
Put more simply, the modern shopper is all about choice. Flexibility. Convenience. Mobility. This just seems like a fundamental misunderstanding of the grocery shopper’s preferences.
AmazonFresh is essentially taking that choice away by charging $299/year, creating a scenario where the shopper would feel that hey can’t shop anywhere else after investing such a large sum of money. This is completely misaligned with how today’s consumers like to shop.
With their current model, I have a hard time envisioning success. But I wouldn’t discount them just yet. This is Amazon afterall, and changing a fee is an overnight tweak.
This is a convenience fee, that Amazon needs to survive in this model, and it really demonstrates that this is NOT a model that is reflecting consumer demand. Instead, it is a solution looking for a problem. The numbers of consumers willing to pay higher prices for having food delivered to them is not large enough to support a model like Amazon’s.