Unpacking Amazon’s free curbside pickup

Obviously, someone at Amazon has noticed that Walmart and Target are getting traction with curbside pickup. Hence Amazon’s announcement that it will provide free one hour pickup from Whole Foods for orders of $35 or move (and who leaves Whole Foods without spending at least that much). So on one level, this just reflects me-too insurance, so if curbside really takes off Amazon won’t be blindsided.

It’s also a response both to the pandemic and to the cost of actually having groceries delivered. “Free” deliveries are not free for Amazon, while a decent tip adds significantly to Whole Foods’ high prices for customers. Amazon is after all competing against much cheaper competitors like Safeway and Walmart, which have now figured out that curbside is a useful lower cost alternative to delivery (which they cannot really do themselves anyway), and are expanding rapidly.

More significantly, this continues to reposition Whole Foods as more than a grocery store. They are now acting as delivery hubs, and that positioning will stick as part of a longer term dual strategy for Amazon: cutting delivery and fulfillment costs, and rolling out a much denser network of delivery hubs.

Cutting delivery costs is a key to making money in online groceries; margins are too tight to permit free delivery otherwise. That why delivery lockers – which have been popping up at Whole Foods and elsewhere  (especially in Europe) – are a big deal: they sharply cut delivery and returns costs. Attracting customers to pick up at hubs instead of expensively delivering to the doorstep is a key strategic initiative across Amazon, not just in groceries.

This all fits in with the planned dramatic addition of 1,000-1,500 suburban delivery hubs, which will be designed to work together with Whole Foods, creating a dense network of pickup spots for customers and of course delivery hubs. So the current Whole Foods curbside experiment may just be a pilot for this much more ambitious project.