By Dan Gallagher

Amazon.com might have finally cracked the code for the online-grocery business. But that alone doesn't mean other players will end up in the clearance aisle.

The e-commerce titan that now generates more than $670 billion a year in total revenue has never managed to be more than a bit player in groceries. Amazon's share of the U.S. grocery market hovers around 3%, according to market research firm Numerator. And that is after its $13.7 billion acquisition of Whole Foods Market in 2017, as well as the opening of more than 60 stores under the Amazon Fresh brand since.

That has never been enough for Amazon, given the size of that market and the need to find significant new avenues of growth for its already massive business.

So the company's latest effort bears watching. Amazon last week announced same-day delivery for fresh groceries in 1,000 U.S. cities, with plans to more than double that number by year-end. The company also significantly lowered the price threshold for free delivery to a $25 minimum order size for members of its Prime shipping service, compared with $100 earlier.

The news shows that Amazon is leaning into two of its competitive strengths -- a vast same-day fulfillment network and its popular Prime program -- to make a bigger dent in groceries. The latter alone is significant. Consumer Intelligence Research Partners estimated that Amazon Prime had 197 million subscribers in the U.S. at the end of June.

That is just what investors in Instacart, DoorDash and even Walmart fear. Instacart's shares have slid nearly 11% since Amazon's announcement, while DoorDash is off nearly 8%.

Even the country's two largest grocers by market share have taken a hit. Kroger shares have slipped 2% since Amazon's announcement. Walmart -- the only company in the world that generates more annual revenue than Amazon -- has seen its stock lose 1% in that time.

Competing with Amazon isn't for the faint of heart. But even if the company does pick up some significant volume in grocery orders, third-party competitors such as Instacart and DoorDash have important strengths of their own. Both offer full inventory from a variety of local stores, with driver networks designed to deliver orders quickly -- typically in an hour or less.

Ironically, product selection will likely be key in taking on "Earth's biggest store." Amazon's press release referred to "thousands of fresh grocery items" available under the new service, while a typical U.S. supermarket stocks an average of 31,795 items, according to the Food Industry Association. "Instacart has the whole grocery store available in relatively fast delivery windows," Bernstein analyst Nikhil Devnani said.

Still, Amazon's new service will likely prove appealing to Prime members looking for midweek "top up" orders of commonly used items, according to Deutsche Bank analyst Lee Horowitz. Serving those orders out of its hyper-efficient fulfillment network without additional delivery surcharges and drivers' tips will also allow Amazon to offer compelling prices -- likely on par with those of Walmart.

In a report last week, Horowitz estimated that if 5% to 10% of U.S. prime members use the service every other week at an average order size of $45, that could add as much as 3% to Amazon's revenue growth.

The rub is that expanding its selection will likely require Amazon to invest more in the type of infrastructure needed to handle perishable food. Marc Wulfraat, president of logistics consultant MWPVL International, estimates that Amazon currently has about 1.5 million square feet of refrigerated fulfillment space in its distribution network -- a fraction of the 19.6 million square feet that Walmart operates across its own network.

Amazon's stepped-up investments in perishable-grocery deliveries will have to compete with the many billions that the company is pouring into artificial-intelligence investments. But matching the selection offered by traditional grocers is crucial for Amazon to take its grocery business to the next level.

Amazon still has a big grocery list to fill out.

Write to Dan Gallagher at dan.gallagher@wsj.com

(END) Dow Jones Newswires

August 21, 2025 05:30 ET (09:30 GMT)

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