Amazon’s Huge Advantage in the Online Grocery Battle with Walmart, Target
Amazon.com (AMZN) launched its Prime Now same-day delivery service in late 2014 to make its subscription program stickier.
It seems to have worked.
A survey released on Tuesday by Wall Street firm Cowen & Co found that one quarter of Prime members used Prime Now in January 2016, with many of those people repeat customers. Cowen’s survey of 1,250 people found that 70% of respondents used Prime Now several times a month.
Prime Now is still only available in 24 major U.S. markets and costs about $8 for one-hour delivery service. It is free for Prime members ordering from an assortment of 10,000 different items if delivery is after two-hours.
The initial success of the program could spell trouble for the likes of Walmart (WMT) and Target (TGT), particularly as more people opt to use Prime Now to purchase food.
“We view Prime Now as one of the pathways Amazon is utilizing to gain share in the $1 trillion U.S. grocery market,” Cowen analysts wrote in a research note.
Walmart has been hurrying to expand its drive-through grocery pick up service to combat Amazon’s incursion into this market. Meanwhile, Target last year started testing grocery delivery with Instacart. Prime Now’s impressive growth will only add to the pressure on such large retailers.
Cowen recently estimated that some 41 million Americans are Prime members (Other estimates have run as high as 54 million), meaning that 10 million people tried Prime Now in January, a sizable number considering its limited availability. What’s more, a December survey found that Prime is drawing younger and wealthier shoppers, who are now using the website to shop for an increasingly diverse range of products, notably apparel. (Cowen forecast in 2015 that Amazon would surpass Macy’s in apparel sales by 2017.)
According to Cowen’s survey of 2,500 customers in December, members of Prime—a $99 annual subscription service that offers, among other benefits, free two-day shipping—had an average household income of $69,300. That’s well above the income of Amazon shoppers in general, some 24.8% higher than Walmart shoppers’ average income, and 4% above Target’s. Such customers are likelier to be willing to spend more for quick delivery.