Amazon Still Faces Challenges Despite Major Grocery Push

Last week, Amazon announced a major expansion of its same-day grocery delivery.

The company said it would now offer perishable groceries in 1,000 U.S. cities, with plans to more than double that number by year-end, while also lowering the price threshold for free deliveries for Prime members.

But as The Wall Street Journal (WSJ) argues in a report Thursday (Aug. 21), these moves don’t necessarily mean Amazon has the grocery sector sewn up.

Third-party rivals like DoorDash and Instacart, that report said, have strengths of their own: full inventory from a range of local stores, plus a network of drivers that can have orders to customer doorsteps in an hour or less.

Product selection will help too, the WSJ added. While Amazon has “thousands of fresh grocery items” available under the new service, according to its announcement last week, the standard American supermarket stocks an average of 31,795 items, the report said, citing the Food Industry Association.

However, Amazon notes that its grocery selection includes both thousands of perishable items like milk, poultry and vegetables along with tens of thousands of shelf-stable grocery products and essential household goods.”

“Instacart has the whole grocery store available in relatively fast delivery windows,” Bernstein analyst Nikhil Devnani said.

As PYMNTS wrote earlier this week, Instacart “is countering with a new ad campaign that will keep its awareness level high, but it remains to be seen how much Amazon will take a bite from its business.”

The grocery delivery provider is also expanding its Carrot Ads retail media platform via a partnership with Bottlecapps, a white-label eCommerce provider for more than 1,300 alcohol retailers in the U.S. and Canada. The arrangement will let Bottlecapps retailers use Instacart’s advertising technology and ad inventory to attract alcohol brand campaigns and provide customers with personalized product recommendations.

The WSJ added that Amazon’s new service will likely appeal to Prime members searching for midweek “top up” orders of commonly used products, according to Deutsche Bank analyst Lee Horowitz.

In a report last week, Horowitz estimated that if 5% to 10% of American Prime subscribers use the service on a bi-weekly basis at an average order size of $45, that could help Amazon’s revenues grow by as much as 3%.

Another challenge facing Amazon, per the WSJ: an expanded selection will mean more infrastructure to help keep perishable food fresh.

Marc Wulfraat, president of logistics consultant MWPVL International, estimates that Amazon has around 1.5 million square feet of refrigerated fulfillment space in its distribution network, compared to the 19.6 million square feet held by Walmart.