Dive Brief:

• Amazon started offering delivery from Whole Foods stores through its Prime Now service in four markets on Thursday, with plans to expand the program nationwide throughout the year, according to a press announcement. The markets beginning the service are Austin and Dallas, Texas; Cincinnati, Ohio; and Virginia Beach, Virginia. Whole Foods will continue offering store delivery through Instacart.
• Amazon Prime members will receive free two-hour delivery on orders of $35 or more and pay $7.99 for one-hour delivery on orders $35 or higher. The service applies to all fresh and grocery products available in Whole Foods’ stores, along with select alcoholic beverages.
• Amazon began selling Whole Foods’ 365 brand products on its site last fall, and racked up $10 million in sales, according to One Click Retail. Amazon is currently the number one online seller of groceries, accounting for 18% of total sales, a Packaged Facts report notes.

Dive Insight:

Ever since Amazon acquired Whole Foods last June, industry observers have been anxiously waiting for the e-tailer to link its technical and logistical capabilities with Whole Foods’ brick-and-mortar operations to create a true online grocery delivery service.

Last August, Amazon began offering Whole Foods’ 365 Everyday brand grocery products on its site — but that was a limited selection with limited visibility to shoppers. Now, Amazon is offering the entire suite of Whole Foods products delivered via the e-tailer’s Prime Now service, which is available to more than 90 million U.S. Prime members.

There's no word yet from Amazon on how the rollout of its Prime Now delivery service will unfold. But assuming the company moves quickly, the move will make Amazon and Whole Foods competitive with many grocers that have recently added home delivery and store-pickup in recent months. For many, these investments were made in anticipation of this very move. 

So how does the new service stack up? First, it should be noted that there’s been some confusion over pricing. According to Amazon’s press release, “Prime members receive two-hour delivery for free and ultra-fast delivery within one hour for $7.99 on orders of $35 or more.” Many news outlets have reported that two-hour delivery is free with no minimums, while others have reported the more likely scenario — that a $35 minimum earns members free two-hour delivery and $7.99 one-hour delivery. Food Dive has reached out to Amazon for clarification.

Assuming the above pricing is based on a $35 minimum, this still makes Amazon-Whole Foods very competitive with e-commerce providers Instacart and Shipt. Both of those companies, which have partnered with most of the country’s major grocery chains, offer memberships that provide discounted delivery. Instacart Express costs around $149 per year while Shipt’s membership is $99. Both providers will frequently offer promotional pricing that drops membership to as low as $59 annually.

Amazon Prime’s $99 annual fee falls in this range, but in terms of overall value, there’s no comparison, since Prime members also get video and music services, discounted shipping on Amazon.com, and much more.

This is Amazon’s real threat in the space: Its ability to leverage the millions of shoppers who are already Prime members. Why would someone pay extra for Instacart or Shipt delivery when they can get their weekly groceries delivered for free with their Prime membership?

Analysts see this as the first step towards Amazon truly leveraging Whole Foods stores. In an email sent to Food Dive, Moody’s lead retail analyst Charlie O’Shea called this the beginning of Amazon “unlocking” the true value of its acquisition.

“In acquiring Whole Foods, Amazon gained a sorely-needed brick-and-mortar partner with which to scale its food business and, provided the limited effort announced today is successful, we expect the entire Whole Foods network to ramp up for delivery in due course as well," he wrote.

Barclays analysts, meanwhile, have closely followed Whole Foods in-store developments. They’ve been less than impressed with the chain’s recent out-of-stock issues and price promotions, but have maintained that once Amazon begins integrating store delivery and other services, it will become a major threat.

“When (not if) broader changes are made, Whole Foods’ traction will pressure other grocers — not just large public players but also smaller independents,” the analysts wrote in a recent note to investors.

It’s worth noting that Amazon Prime Now and its Fresh delivery service have been around for years, and have struggled to grow. But the e-tailer didn’t have the network of stores that it has now, meaning the service is essentially getting a fresh start. If Amazon and Whole Foods can execute on customer demand around stores, it will grow considerable market share in an online channel that’s expected to be worth $100 billion in as little as five years.

And this is just the beginning.