Amazon Lowers Grocery Delivery Threshold as Retailers Tinker With Fees

As major retailers struggle to strike the balance between winning grocery delivery customers from competitors and boosting margins per order, Amazon continues to adjust its free delivery minimum for its Prime subscribers.

The eCommerce giant announced Thursday (Oct. 5) that it has lowered the threshold for free grocery delivery for Prime members to $100, down from the previous minimum of $150, which itself was imposed earlier this year, a dramatic increase from the $35 threshold that was previously in effect.

The move comes as major retailers weigh the challenges of making eGrocery more profitable versus winning the loyalty of customers amid stiff competition from rivals. Walmart, for its part, offers its Walmart+ members free grocery delivery on orders over $35, while non-members are charged between $7.95 and $9.95.

Costco’s fees, meanwhile, vary depending on a number of factors, but the company’s same-day delivery option is only available for orders of $35 or more.

Amazon’s move to lower its free delivery threshold for members comes as the company looks to grow its share of grocery sales — a category in which it lags far behind competitor Walmart. PYMNTS Intelligence finds that Walmart has captured a 19.3% share of consumers’ food and beverage spend — nearly eight times Amazon’s 2.6% share.

In general, amid ongoing financial challenges, consumers have been loath to pay steep fees for delivery or to pay extra for the service. Take, for instance, restaurant ordering. PYMNTS Intelligence’s report “Connected Dining: Rising Costs Push Consumers Toward Pickup,” which drew from a survey of more than 2,100 U.S. consumers, revealed that 58% of takeout customers said they pick up restaurant meals to save on delivery fees, and 48% said inflation has made them more likely to choose pickup over delivery.

Plus, high free delivery thresholds tend to limit online grocery’s audience. Indeed, PYMNTS Intelligence finds that eGrocery is highly skewed toward high earners. Last year’s study “The ConnectedEconomy™ Monthly Report: Paycheck-To-Paycheck Consumers Digitally Disengage” found that nearly half of all consumers earning $100,000 or more per year who do not live paycheck to paycheck had purchased groceries online in the previous month. Meanwhile, a far lower share of low-income consumers and those with no financial safety net had done the same.

Still, grocery delivery adoption on the whole is on the rise. U.S. grocery giant Kroger, for its part, shared in a presentation shared with analysts last month accompanying its second quarter Fiscal 2023 financial results that its 12% year-over-year digital growth was driven in part by an uptick in delivery orders. Similarly, Albertsons shared in its most recent earnings report that its eCommerce sales rose 22% in Q1 FY2023.

Grocery delivery is likely to continue to grow in the year ahead, as more consumers turn to digital channels. PYMNTS Intelligence’s report “Tracking the Digital Payments Takeover: Catching the Coming eCommerce Wave,” created in collaboration with Amazon Web Services (AWS), which drew from an April survey of nearly 2,700 U.S. consumers, revealed that 32% of shoppers said they are very or extremely likely to increase their online grocery purchases in the next year.