Would you pay $299 annually if it meant never having to go to the supermarket? Amazon.com is testing a service with that idea in mind. And that’s on top of Amazon’s other services that already eliminate the need to go to the mall.
Amazon Prime, the $79-per-year membership program that includes free two-day shipping on most Amazon purchases, has been enormously successful. The number of subscribers easily doubled over the past two years, and analysts expect Prime membership to triple over the next five years.
One of the most interesting effects of having a Prime membership is that the subscriber tends to make more and more purchases on Amazon. Members assume — with good reason — that Amazon’s prices are competitive on just about anything they might purchase, and shipping is free thanks to the $79 they’ve paid for Prime, so subscribers increasingly turn to Amazon in knee-jerk fashion, often without bothering to shop around. And because there’s no minimum purchase requirement, subscribers have found themselves using Amazon as a substitute for all sorts of small everyday shopping errands, so long as the items aren’t needed right away. Batteries, coffee beans, extension cords: these and many other goods are a quick one-click purchase away on Amazon, saving you the trip to the drugstore, supermarket, home-improvement store, Walmart, or wherever.
While there has been plenty of skepticism as to whether online grocery shopping can be a viable business, Amazon has been experimenting with its service, called AmazonFresh, in the Seattle area for years. As Reuters reported, Amazon is now pushing Fresh into the Los Angeles area, with a special twist: a “Prime Fresh” membership is being offered to existing Prime members, who will get free same-day or overnight delivery of grocery orders over $35.
Prime members in L.A. get a free 90-day trial of the service. After that, they’re on the hook for $299 per year for Prime Fresh, unless they choose to cancel the service. The original Prime helped subscribers eliminate many shopping errands, and now the bigger, grocery-based Prime aims to get rid of the need for the most typical shopping errand of all: the weekly trip to the supermarket. Fresh produce, milk, meat, bread, peanut butter: now all this and more is a quick one-click purchase away, right alongside batteries, coffee beans, extension cords, electronics and everything else sold via Amazon.
In addition to free shipping and the assumption of decent prices, another reason that regular old Prime members found themselves spending more on Amazon is the need to “get their money back” for their $79 annual fee. Prime Fresh members will be dropping significantly more annually for the service, so they’ll presumably feel even more of a compulsion to get their money’s worth. All of which points to a whole lot of shopping taking place on Amazon, across a wide range of categories. “It will help to make Amazon the starting point for online purchases — more than it already was — and give consumers even less of a reason to shop anywhere else,” Morningstar equity analyst R.J. Hottovy said to Reuters about Prime Fresh.
Can Amazon make profits with Fresh and the new subscription plan? That’s unclear. And Amazon may not even care. Thus far, same-day-delivery services from Amazon and other retailers appear to be money losers. Yet as Slate’s Matthew Yglesias put it, Amazon is “a retail juggernaut built on the principle of not doing things profitably.” The world’s largest e-retailer tends to focus first and foremost on how to dominate a retail category, and then figures the profits will come, somehow, some way, down the line.
That kind of business model has to frighten supermarkets, drugstores, bookstores, electronics stores and pretty much every other kind of retailer on the planet.