Amazon bringing 2-hour delivery to Whole Foods is a sneaky change in strategy, and it could mean a big change is coming

  • Amazon is rapidly expanding its free two-hour delivery service from Whole Foods stores through Prime Now.
  • Billed as an additional option for grocery delivery, it's actually a huge change in strategy.
  • Delivering directly from stores instead of from a fulfillment center could be a way for Amazon to crack grocery delivery by making it cheaper and more reliable. 

Amazon is expanding its free two-hour delivery service from Whole Foods stores through Prime Now at an ever-increasing rate.

Amazon announced on Tuesday that it would be rolling out free two-hour delivery from Whole Foods stores for Prime members in four new cities: Baltimore, Maryland; Boston, Massachusetts; Philadelphia, Pennsylvania; and Richmond, Virginia.

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7 shock-worthy facts about Amazon
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7 shock-worthy facts about Amazon
7.5 percent of Seattle's working-age population are Amazon employees

Amazon has more than 300,000 employees worldwide, and 40,000 in Seattle alone.

As a portion of the city's working-age population — roughly 528,000 — that comes out to 7.5% of the city working at Amazon.

For perspective, if the same portion of New York City's adults worked for one company, that company would have about 488,000 locals on staff.

Amazon accounts for 43% of all online sales

Amazon used to be a way to buy books online; today, it's the default buying site for just about everything, especially for people who have Amazon Prime.

An analysis by Slice Intelligence released in February found that 43% of all US online retail sales were done through Amazon in 2016.

That's up from 33% in 2015 and 25% in 2012.

1 out of every 4 US adults has Amazon Prime.

Speaking of Amazon Prime, the company now counts approximately 63 million people among its subscriber base, or about 25% of the total US adult population.

That number may underestimate the true coverage, however, since it doesn't account for multiple adults in one household all sharing the same Prime account.

Amazon ships 1.6 million packages a day

Amazon fulfillment is a beast of its own.

A report from 2013 (the latest year for which data are available) found Amazon shipped 608 million packages that year, or 1.6 million packages a day.

As of 2015, Amazon estimated its fulfillment centers were within 20 miles of 31% of the US population, and within 20 miles of 50-65% of its core, same-day-accessible market.

That's enough cardboard to span all of West Virginia

A back-of-the-envelope calculation reveals all those packages (not including padded envelopes) yield roughly 26,400 square miles of cardboard.

The total land area of West Virginia, meanwhile, is just north of 24,000 square miles.

Given the speed of Amazon's shipments, the company could blanket the whole US in cardboard in about five months.

45,000 robots roam the floors of Amazon's warehouses

To help those shipments leave the warehouses on time, Amazon relies on a growing fleet of autonomous robots that fetch packages from their shelves and bring them to human employees.

The 45,000 robots live across 20 fulfillment centers in the US. In 2016, the company increased the fleet 50% from its prior head count of 30,000.

Amazon is more valuable than all major brick-and-mortar retailers combined

The sum total of those investments in infrastructure and supply chain management have made Amazon by far the most valuable retailer in the United States.

Amazon's $356 billion valuation is so big, it's larger than Wal-Mart, Target, Best Buy, Macy's, Kohl's, JCPenney, and Sears combined.

With the recent acquisition of Whole Foods, there are no signs the retailer has any plans of slowing down.

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Whole Foods delivery through Prime Now has already been rolled out to 14 metro areas across the country, and it's expected to grow to even more throughout the year. 

While it's easy to dismiss this as a minor new perk, or a small feature that doesn't require much fanfare, when taking into account how this changes Amazon's grocery strategy overall, a bigger picture of where the company is going emerges. In fact, delivering from Whole Foods stores changes the equation substantially.

Amazon's other grocery delivery services — Amazon Fresh and Amazon's own store on Prime Now — both use central delivery centers. But delivery can vary in terms of timing, and the customer experience can be uneven depending on the location. It's also expensive to operate these centers, and it's difficult to predict how much customers will use the service in any given week.

Grocery stores, on the other hand, have all of that figured out already. By using Whole Foods stores as depots, Amazon's grocery delivery switches from a centralized model to one that looks a lot more like Instacart, which has found success linking customers with partner stores.

"The combination of Amazon's e-commerce and distribution capabilities with Whole Foods' physical locations — and the overlap between Amazon Prime members and Whole Foods shoppers — looked like a decisive advantage out of the gate," Maria Steingoltz, a managing director at L.E.K. Consulting, said in a report about grocery e-commerce.

The stores are closer to customers, there's more of them than there are distribution centers, and it makes a lot more sense for reaching customers in far-flung suburbs. In short, it appears to be cheaper to do grocery this way. 

Add on to that an online-enabled grocery pickup service, and you've got a huge shift in strategy for the world's largest e-commerce retailer.

Grocery delivery already has a dubious reputation in terms of profitability. Online grocery accounted for a measly 2% of all online sales in 2017, according to L.E.K. But there is latent demand, with 40% of consumers saying they have tried an online grocery service before. L.E.K. expects the business to have its moment soon, predicting it will rise to take 20% of the grocery market by 2025.

There's already a lot of overlap between Amazon Prime members and Whole Foods shoppers, and if those trying the service are happy enough to make it part of their routine, Amazon may actually be able to disrupt another market.

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