Seattle, WA- Amazon has announced to businesses that it will be taking less commission from the sales of non-perishable grocery items priced at $15 or less from 15% to 8% for the next year.
While Amazon has declined to comment on their rationale, analysts speculate the reasoning behind their actions stems from how difficult it can be for businesses to make a suitable profit on inexpensive grocery items after factoring in shipping, storage, and retail expenses. For this reason, it makes little sense for distributers of lower-priced grocery items to sell their product through Amazon. Amazon is attempting to retain these distributers by giving them more incentive.
A solution that sellers and grocery distributers have come up with is selling lower priced product in bulk at wholesale prices, which Amazon then directs to its membership programs such as Prime Pantry or Amazon Fresh. Prime Pantry allows Prime members fill a box of grocery items for $5.99. Amazon Fresh costs $14.99 a month (in addition to the regular $99-a-year Prime membership fee) and allows customers to buy low-priced grocery items with free shipping.
The company recognizes that not all customers are willing to pay a fee, but it still wants customers to think of Amazon as a destination for groceries. The company knows it will not portray itself as such if they only sell grocery items in bulk. For this reason, the likely motive behind lowering fees was to encourage grocery sellers to continue selling single units of lower-priced items by expanding their profit margin.
David Rekuc, the marketing director for the e-commerce consultancy Ripen eCommerce, is still doubtful that Amazon’s plan of action will be entirely successful.
“It’s nice to see and it may move the needle a little bit,” he said of the fee discount, “but it won’t fundamentally change [Amazon’s] penetration in grocery.”