Amazon is changing its Fresh pricing as the online grocery market heats up (AMZN)

Amazon is changing its Fresh pricing as the online grocery market heats up (AMZN)

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Amazon has changed the price of its grocery delivery service AmazonFresh, reports TechCrunch.

The program has dropped from $299/year to $14.99/month and will remain tied to the Amazon Prime membership, which costs $99/year. Amazon's decision to adjust the price of Fresh could help onboard shoppers as the company faces increasing competition in the online grocery market.

Amazon's new pricing model could entice more shoppers to sign up for the service. The steep $299/year price tag for AmazonFresh (which included a Prime membership) may have been enough to deter potential signups. The new pricing model can help onboard existing Prime members who have been hesitant to use the service, while also potentially driving additional signups for Prime.

This is especially important for Amazon as Prime members spend more than nonmembers — the average annual spend by Prime members is $1,200, significantly higher than non-Prime members, who spend only $500 per year, on average, according to a report from Consumer Intelligence Research Partners (CIRP). By widening the addressable market for AmazonFresh via a new pricing model, Amazon Prime members will likely become even more valuable to the company's total business.

But Amazon faces steep competition in the e-commerce grocery market:

  • FreshDirect raised $189 million in new funding two weeks ago: Online grocer FreshDirect raised the capital in a round led by J.P. Morgan Asset Management, at a time when funding for online grocery and meal delivery companies has receded. The firm plans to use the funds to expand into new regions, improve and add new distribution and manufacturing centers, and pursue new business lines.
  • Instacart reportedly sold $36 million in equity to Whole Foods: In February, organic grocery chain Whole Foods invested in its on-demand grocery delivery partner, Instacart, making it the exclusive delivery partner for Whole Foods. Now, it's been revealed that Instacart reportedly sold an equity stake worth $36 million to Whole Foods as part of the five-year deal, according to Bloomberg. The shares were tacked on to Instacart's prior investment round that garnered the company a $2 billion valuation — it had raised over $270 million before the investment from Whole Foods.

These companies face a lot of pressure as the market for online groceries heats up. In the 12 months ended June 30, 2016, the global grocery e-commerce market totaled $48 billion, representing 15% year-over-year (YoY) growth. Increased consumer demand, coupled with rapid expansion among these providers, will leave little room for error when it comes to driving up sales. In order to gain market share, grocery delivery providers will need to provide tools that mollify consumer issues with ordering perishables online, like the preference to touch, smell, and see what they are buying.

One way to overcome these barriers would be to offer omnichannel fulfillment options like click and collect, which keep intact the in-person experience that shoppers are accustomed to. These methods also give shoppers the chance to address any potential issues with a company employee before taking their groceries home. As the online grocery market grows more crowded, those that ease consumer worries will be the ones that rise to the top.

Click and collect — a fulfillment option that lets shoppers place an online order and pick it up at a store — is thriving in the UK.

Over half of UK shoppers report having used this method in the past year, according to a survey from JDA & Centiro conducted in April 2016.

However, the US is far behind on the click and collect trend, with just 27% of consumers using the service. This is largely due to slower growth in mobile commerce, and specifically, the hesitancy shoppers feel about using mobile retail apps.

Retailers in the US can look to the growth drivers in the UK to help drive up their own click and collect sales. Most notably, mobile commerce and adoption by grocery chains are driving shoppers in the UK to use click and collect.

Nancee Halpin, research associate for BI Intelligence, Business Insider's premium research service, has compiled a detailed report on click and collect that breaks down the growth factors behind click and collect in the UK. It also discusses the retailers successfully implementing the fulfillment method, examines the of impact consumer behavior, and outlines some key steps that US retailers can take to replicate the UK's performance.

Here are some key takeaways from the report:

  • The UK's click and collect market is expected to grow 78% by 2020, to £8.2 billion ($10.6 billion). Meanwhile, it is expected to reach £5.3 billion ($6.8 billion) by the end of 2016.
  • Click and collect is benefiting from consumer adoption of mobile commerce in the UK. Mobile is a fundamental driver because it affords consumers more flexibility in the purchasing process. As a result, many UK consumers are purchasing goods on their mobile phones, and then picking them up on the way home from work, the gym, appointments, etc.
  • The service is particularly popular among grocery chains, with many of the UK's largest supermarkets offering click and collect. Since trips to the grocery store are made frequently and regularly, click and collect is a perfect fit for shoppers who want to avoid recurring issues like long checkout lines and crowded stores.
  • To grow click and collect in the US, retailers need to invest in their mobile presence and dedicate in-store resources to click and collect shoppers. Merchants should do more than just recreate the desktop browser experience on a mobile app — this includes employing tools like mobile loyalty programs, digital coupons, and social media integration.

In full, the report:

  • Sizes the market for click and collect in both the UK and the US.
  • Identifies the key growth factors that are making click and collect successful in the UK.
  • Discusses key players in the UK that are seeing success with click and collect.
  • Presents some of the challenges the US faces in spurring adoption.
  • Outlines future opportunities for US retailers to grow sales via click and collect.

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