Amazon adds perishable foods to same-day delivery to take on Instacart, Walmart

By Arriana McLymore

NEW YORK, Aug 13 (Reuters) - Subscribers to Amazon.com's AMZN.O Prime service can now get strawberries, milk, meats and frozen dinners on the same day they order them as the company expands its fast-delivery option to perishable food items, Amazon said on Wednesday.

It is the latest move by Amazon to compete with delivery services offered by Walmart+ WMT.N and Instacart.

The new same-day delivery service is free for Prime members, who pay $14.99 monthly or $139 annually, for orders over $25. Shoppers without a Prime membership have to pay a $12.99 fee, regardless of order size, to use the new service. Walmart's membership service, Walmart+, costs $98 a year and offers same-day delivery in under three hours - with some orders arriving in as little as 30 minutes.

As of Wednesday, Amazon shoppers in more than 1,000 U.S. cities - including Phoenix; Raleigh, North Carolina; and Tampa, Florida - are able to obtain same-day delivery of perishable food items. The company plans to expand the service to 2,300 cities by the end of the year.

Previously, Prime subscribers' perishable grocery orders were fulfilled through Amazon Fresh or Whole Foods Market, but they had to pay an additional $9.99 per month on their subscription to receive free deliveries on grocery orders that totaled more than $35, according to the company's website. Now the additional service will complete orders through its same-day delivery logistics network.

"This marks a major expansion for Amazon’s digital grocery service, largely because it's being offered to its massive Prime member base at no additional cost," said Blake Droesch, analyst with eMarketer. "Notably, Amazon has lowered the minimum order threshold to just $25 - a move that directly threatens Instacart by enabling customers to use Amazon for quick, one-off purchases, a core part of Instacart's value proposition."

Brian Mulberry, portfolio manager at Zacks Investment Management, said the new offer is likely to increase Prime's membership, but added that ensuring that the service is high-quality will be critical for growth.

The product update today decreases the barrier to entry for Prime and non-Prime users to buy groceries from Amazon and will likely pressure Uber Eats and DoorDash's DASH.O margins, said Stephen Ju, analyst at UBS.

Amazon shares were up 1% on Wednesday while shares of competitors in the grocery-delivery category lost ground. Shares of Instacart, also known as Maplebear CART.O, were down 10.2%, while shares of Kroger KR.N and DoorDash were both down 4.4%. Walmart shares were down 2% and shares of Uber UBER.N, parent of Uber Eats, were down 1%.

Amazon announced in June it is investing $4 billion to bring same-day and next-day delivery services to more than 4,000 rural U.S. communities by the end of the year.

In May, Walmart said it will soon be able to offer delivery within three hours to 95% of the U.S. population, and that faster delivery speeds are helping drive its business.

Amazon shoppers "can order milk alongside electronics ... and check out with one cart and have everything delivered to their doorstep within hours," Doug Herrington, CEO of Worldwide Amazon Stores, said in a press release.

While the company is focusing on its U.S. grocery experience, it is facing hurdles in the UK with its suppliers, a study by British grocery regulator the Groceries Code Adjudicator found.