What Led To Amazon's Shutting Down Much of Its Fresh Grocery Delivery Service?

A setback for the relentless, ruthlessly efficient logistical machine? Say it ain't so. 

To be fair, Amazon has a history of experimenting with different models and moving on when one of them doesnt work.

But the harsh reality is that the margins in retail are much thinner than they are in ecommerce because the costs and physical investments required are greater. That said, it has become apparent that an ecommerce-only model will not deliver the growth which Amazon wants - and on which its future depends. So, welcome to the hard world of satisfying customers while trying to make a profit. JL


Jason Del Rey reports in Re/code:

The Amazon Fresh service first launched a decade ago in the Seattle area, and didn’t expand to other cities for more than five years. The company’s slow rollout showed the challenges of trying to make the economics of grocery delivery work as the company experimented with different payment models. The difficulties Amazon encountered expanding Amazon Fresh while trying to make a dent in the $700 billion grocery industry were widely seen as one impetus to acquire Whole Foods.

Even as Amazon has taken a huge leap into groceries with the acquisition of Whole Foods, it’s scaling back other parts of its grocery business.

The company emailed customers in at least five states on Thursday to inform them that the Amazon Fresh grocery delivery service was closing in certain neighborhoods later this month.

Amazon Fresh customers in parts of New Jersey, Pennsylvania, Delaware, Maryland and California have reported receiving the notices, either directly to Recode or in posts on social media. Some residents of big cities like Los Angeles and Philadelphia even reported receiving a notification.

(Update: After publication, Fresh customers in four additional states — New York, Connecticut, Massachusetts, and Virginia contacted Recode to say service in their area had been suspended, too.)

An Amazon spokeswoman confirmed that Fresh is ending service in parts of these states, but made clear the service would remain serving certain areas of big cities such as New York City, Boston and Chicago — as well as Philadelphia and Los Angeles, among other metropolises.

She said the changes were unrelated to the Whole Foods acquisition, but declined to provide more details.

The Amazon Fresh service first launched about a decade ago in the Seattle area, and didn’t expand to other cities for more than five years. The company’s slow rollout showed the challenges of trying to make the economics of grocery delivery work as the company experimented with different payment models.

Amazon Fresh customers currently pay $14.95 a month in addition to the $99 Prime membership program, to which they must belong. These grocery customers can choose from a selection of fresh and frozen foods, in addition to some general merchandise, that are delivered on the same day of morning orders or the next morning on orders placed later in a day.

The difficulties Amazon encountered expanding Amazon Fresh while trying to make a dent in the $700 billion grocery industry were widely seen as one impetus to acquire Whole Foods.

On a recent conference call with Wall Street analysts, Amazon’s CFO said there would be more cooperation over time between Whole Foods, Amazon Fresh and the Amazon Prime Now one-hour delivery service. Amazon is also trying to increase its packaged grocery selection on its main website by lowering the commissions it charges sellers.

The Amazon spokeswoman said she could not speculate on whether Amazon would re-launch grocery delivery services in the affected areas in the future. Is it possible Amazon plans to open Amazon Fresh pickup locations, like it has two of in Seattle, in the areas affected by these service changes? It seems unlikely considering the real estate footprint the company acquired in Whole Foods.