Dive Brief:

• Amazon has lowered its fee on non-perishable grocery items offered through its website that cost $15 or less, according to Recode. The e-tailer, which charged 15% on all grocery products, will drop its fee to 8% over the next year. 
• “To help you list more products and keep prices competitive, we are offering you a limited-time referral fee discount on Grocery products,” an email sent from Amazon to suppliers, and obtained by Recode, reads. “This fee promotion starts at 12:00 a.m. October 15, 2017 (PST), and will run through 11:59 p.m. October 14, 2018 (PST).”
• According to Recode, the move is likely in response to the competitive threat Walmart and Jet.com — which charge 15% and 10% fees, respectively — pose to its grocery business. It could also be an acknowledgement of the difficult economics behind selling low-cost grocery products online.

Dive Insight:

Amazon is known for asking a lot of suppliers, and suppliers in return are willing to give up a lot to have their product listed on the hugely popular site. But this move seems to acknowledge how difficult it is right now for online sellers to make money on low-price groceries.

According to Recode, the costs associated with shipping goods to Amazon’s warehouses and storing them can quickly add up. The site estimated a 40-ounce jar of peanut butter that retails for $5.49 might incur $4.44 in shipping and storage fees alone, before factoring in the cost to produce the product and Amazon’s previous 15% commission.

To get more bang for their buck, sellers will offer items in bulk quantities, or sell products at wholesale to Amazon, which then makes the items available through its membership programs like Prime Pantry and AmazonFresh. Both of these programs, though, come with additional charges — Prime Pantry requires Prime members to fill up a box with goods, then charges $6 for shipping, while AmazonFresh is a $15 per month service available only in select cities — and Amazon, Recode writes, knows a lot of shoppers either don’t want or can’t afford those services.

“Amazon recognizes that there are plenty of Amazon customers that will never pay for either program and it still wants those people to think of Amazon as a grocery destination,” according to Recode. “The problem is, it’ll never win that perception by only selling bulk-size packs.”

Looked at this way, Amazon lowering its commission is more about giving customers a variety of options than it is about helping out suppliers. This is to be expected from the “customer obsessed” company.  

Amazon is no doubt focused on undercutting the threat Walmart’s growing online presence poses, both through its own brand and through Jet.com. Earlier this month, Jet launched its own grocery line, Uniquely J, and continues to innovate on its assortment, pricing and shipping options. Amazon is probably looking at discounters, drug stores and dollar stores, too, all of which are offering competitively priced grocery items.

Slashing its commission in half will hit Amazon’s bottom line. But the e-tailer has consistently shown it’s willing to lose money in the short term if it means gaining or retaining customers over the long haul.