Over the course of the past two decades, Amazon has made a serious dent in the brick-and-mortar industry with its affordable prices and convenient front-door delivery. Until recently, offline retailers always had the advantage of immediacy, since purchasing from Amazon means waiting for the item to ship from the warehouse. Amazon Prime members have the benefit of two-day delivery on certain items, but in many cases it’s simply easier to pick up items from a local grocery or department store.
Enter Amazon’s Prime Now. The service promises same-day delivery on a large number of items including home essentials, electronics and books. Best of all, it is free for two-hour delivery, with one-hour delivery available for $7.99.
The service is only available to Prime members, who pay a $99 annual fee for free two-day shipping, as well as access to streaming TV shows and movies.
Amazon Prime Now
Amazon recently launched Prime Now in the Manhattan market, with plans to expand the service to more areas soon. By launching this service, Amazon is aiming to lure more customers into Prime, which will naturally increase its recurring revenue base. In return, Amazon will be required to up its expenditures on delivery services, since local bike messengers will be used to make the deliveries. The messengers will reportedly make $15 an hour and work eight-hour shifts.
The service isn’t completely free, though. A tip is suggested when the customer pays, with a recommended tip amount of five dollars. This amount can be adjusted based on the purchase amount and service level, but Prime members can save that fee by having that same item shipped and waiting two days.
Growing Competition
As Amazon grows its delivery service, it already faces competition from two companies: Uber and a startup called Instacart.
Uber Essentials is currently being tested in Washington D.C.. Users log into the app, click on Essentials, and choose from a list of items available for front-door delivery. Drivers are then sent to pick up those items and bring them to the customer within ten minutes.
Perhaps more notable, however, is Instacart, a grocery-delivery service now available in 15 metropolitan areas. A shopper picks out groceries, sets a delivery timeline, and a local shopper is sent to pick the items up at a local grocery store and deliver them. Delivery is $3.99 for two-hour delivery and $5.99 for one-hour delivery as long as an order costs $35 or more.
Local Competition
In addition to tech-based competition, Amazon also must beat offline retailers at the local delivery game. Walmart is already offering local delivery in certain areas and national grocery giant The Kroger Co. is testing local delivery. The Kroger Company includes Fred Meyer, Gerbes Super Markets, Harris Teeter, Ralphs, and many other popular stores.
Amazon’s move into this space is likely to heat up competition for both local and online retailers, who must find new ways to provide convenience to customers. The test in Manhattan will likely let the e-commerce giant know whether the financial model is sustainable, but even if it isn’t, there appear to be many retailers willing to offer fast, local delivery to customers.
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