Amazon.com Inc (NASDAQ:AMZN) is accelerating its grocery ambitions with a nationwide push to deliver fresh, perishable foods the same day, a move Bank of America analysts see as a long-term growth driver with minimal impact on margins.
The company said customers in 1,000 towns and cities can already order fresh groceries, with plans to expand to more than 2,300 US cities by the end of 2025.
Bank of America noted the expansion appears to be baked into Amazon’s capital expenditure forecast of roughly $118 billion for 2025.
Analysts wrote that the scale of the launch suggests Amazon “is now able to deliver fresh grocery at scale without a material margin headwind,” pointing to the company’s Q3 profit outlook, which guides margins up 40 basis points at the high end.
The new pricing model offers Prime members free same-day delivery on orders of $25 or more, or a $2.99 fee for smaller orders. Non-Prime customers pay $12.99 per order.
Amazon will also continue offering its $9.99 monthly grocery subscription, which includes free delivery on orders over $35, a program analysts believe will remain key for Whole Foods and third-party retail integration.
US grocery represented a $941 billion market in 2024 and online penetration at just 13.4%, well below the 22.6% online share of overall adjusted retail sales. Bank of America believe that closing this gap represents an incremental $90billion revenue opportunity for Amazon.
Fresh grocery, analysts added, has been “a significant missing piece” compared with Walmart and Target, and could improve customer retention through the habitual nature of weekly grocery shopping.
“We see the launch as a longer-term competitive risk for Instacart, though we think Instacart's most profitable $75+ weekly baskets will see little near-term impact,” they wrote.
Bank of America maintained its 'Buy' rating on Amazon with a $272 price objective. Shares of Amazon traded up 3.3% at $232 on Thursday afternoon.
“With better grocery capabilities, Amazon should see important customer frequency benefits and potential lock-in with weekly grocery shopping not achievable in other verticals,” they wrote. “We expect Amazon to refine and improve its grocery selection over time.”