Dive Brief:

• Whole Foods Market will charge a $9.95 fee in select markets for grocery delivery orders beginning Aug. 30, a company spokesperson said. This includes those placed by Amazon Prime members, who previously got free delivery on orders over $35.
• In an email sent to shoppers in the Detroit, Chicago and Boston areas, along with Portland, Maine; Providence, Rhode Island; and Manchester, New Hampshire, Amazon said it was levying the fee to cover equipment, technology and other online operating costs without increasing product prices. 
• The pilot program, as the Whole Foods spokesperson referred to the change, indicates the grocer and its parent company want to gauge the degree to which shoppers are willing to shoulder the steep costs of grocery delivery.

Dive Insight:

Shortly after Amazon acquired Whole Foods in 2017, the companies rolled out the free-delivery perk for Prime members. The move was seen as a way to add value to Prime membership and also funnel additional shoppers into Whole Foods’ stores and e-commerce services.

But following a tumultuous 2020 that saw Whole Foods deliver three times as many orders as it did in 2019, the grocer and Amazon are looking to offload some of its growing operating costs onto shoppers while still keeping product prices competitive. 

The new fee test, which was first reported by Bloomberg, reflects the tension between promoting online grocery usage to shoppers and actually paying for it. Despite the eye-grabbing appeal of free delivery, the service is pricey to operate — even for Amazon — and only getting more so as grocers add more technology, including automation, to fulfill orders. The Whole Foods spokesperson said the average basket size has increased throughout this year and that the chain benchmarked its new fee against competing service charges on the market.

Predictably, consumers criticized the new fee on social media, noting that it removes a key Prime perk at a time when many shoppers rely on home delivery. The surging delta variant, which is prompting a reintroduction of mask-wearing measures in some stores and support facilities, promises to further boost e-commerce use this summer and into fall.

In its email to shoppers in the six markets where the fee will go into effect, Amazon promoted other Prime perks like 10% off on certain products and free one-hour store pickup. It also touted Prime benefits like streaming video, gaming and music.

Two years ago, Amazon did away with its $15 monthly charge for Amazon Fresh online delivery. The service is still free through its Fresh stores as well as its e-commerce platform for shoppers who meet the order threshold.

Amazon will be closely watching how shoppers respond to the new fee. The company and Whole Foods may be hoping that cutting free delivery will push more Prime members to explore the chain’s physical stores. Foot traffic at the grocer has been slow to rebound from the pandemic’s early days, but Amazon’s latest earnings report showed an 11% increase in physical store sales, the majority of which are Whole Foods stores, indicating more consumers are returning to these locations.