Amazon is changing a new $10 delivery fee for Whole Foods groceries, but it isn’t actually changing what you pay. It’s changing how you shop.
The reality is that a $10 delivery fee isn’t going to stop people from using the service that streamlines our lives and saves us time–our most valuable resource. After all, one would need to be something of a modern-day Houdini to have mastered the quick trip to the supermarket. It’s time-consuming to waltz down aisle upon aisle, and that doesn’t even factor in the fact that you still had to get up and get out of the house to trot over to the store when you already don’t have enough hours in the day and would likely rather be doing just about but go food shopping.
Amazon has already ignited a retail revolution, changing the way in which people shop for groceries, from in-store to online. And though it now changed from free to fee, the added expense less little to do with what you pay. Rather, yet again, it changes how you shop.
What its $10 delivery fee is going to do is generate larger orders. In other words, to save money on the delivery fee, people will order more products but have fewer orders. While this ultimately won’t make a major impact in terms of overall sales, it does change relieve some of the burdens on the infrastructure involved with deliveries. Larger orders at a lower frequency will be much more manageable in terms of the labor involved in picking products off the shelf, packaging them, and shipping them.
This sounds like a self-serving decision at the expense of its consumers–a poor move for any company of any size. But, in the long run, this may actually prove to be to the benefit of its consumers. That’s right, it will actually lend to cheaper groceries.
Now, groceries are anything but cheap–and this is especially true with Whole Foods, the grocery chain that is widely referred to as “Whole Paycheck,” as John Mackey, Whole Food’s founder and CEO says himself. But the price of Whole Foods has actually dropped since its merger with Amazon.
Amazon as an E-commerce powerhouse came in and did what Whole Foods hadn’t been willing to do: slash prices. As Mackey says, “Amazon allowed Whole Foods to think long-term.”
Under the pressures of being a public company, Whole Foods had remained reluctant to drop prices, even though everyone–including Mackey–knew it needed to. But it didn’t because of the short-term losses that would ensue should it drop its prices.
Unlike other industries where a price decrease leads to a jump in the number of products purchased, Whole Foods is in an industry where that typically isn’t the case. After all, we’re not talking about a massive blowout sale, but a nominal price reduction across the board. A $0.10 decrease isn’t enough to inspire consumers to stock up or try a new product–that is if they even notice, and yet that’s the type of drop Whole Foods is in dire need of.
Amazon is a master of the long-term play, and if what we’ve seen so far is any indication of what is to come, then what we’re going to see is that the new delivery fee Amazon is piloting for Whole Foods groceries isn’t going to make your tab more expensive, but actually cheaper. By taxing the infrastructure less by changing the way consumers shop, leading to fewer–but larger orders, Amazon has just dropped its grocery delivery-related expenses, opening the door to a drop in product pricing.
And if not, Amazon will undoubtedly see a drop in sales. As would be well deserved if it proves that the move is rooted in an effort to simply squeeze more profits out of people, the way it appears on its face.
Amazon has dropped Whole Foods’ pricing time and time again. This time, after dwindling down on supplier costs and profit margins, it’s come down to reducing the expenses involved with offering the service. But the role of the $10 fee isn’t to directly decrease the cost of doing business. The fee reduces the number of orders a consumer will place. The delivery fee is simply a way to evolve buying behaviors and motivate larger orders across fewer orders.
When we zoom out from what’s right in front of our faces, we can see the bigger picture. The optics reveal that Amazon, as a master of long-term thinking for strategic growth, is playing chess–something every startup needs to do to be successful and come out on top amongst everyone else playing checkers.