Amazon's Grocery Delivery Expansion Seen As Game-Changer In $90-Billion Online Market Opportunity

Benzinga
2025.08.14 16:22
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Amazon has expanded its grocery delivery service to all customers in over 3,500 cities, previously limited to Prime members. This move is seen as a significant step in capturing a share of the $941 billion U.S. grocery market, which has only 13.4% online penetration. Analysts from Bank of America and Wedbush have maintained bullish ratings on Amazon, forecasting prices of $272 and $250, respectively. The expansion is expected to enhance customer retention and shopping frequency, posing a competitive threat to Instacart and other grocery delivery services.

Amazon.com AMZN continued to trade higher on Thursday, fueled by investor optimism surrounding its U.S. grocery delivery service expansion to all customers in over 3,500 cities. Previously limited mainly to Prime members, the service now offers same-day delivery from Amazon Fresh and Whole Foods to everyone, with lower fees for Prime subscribers.

Wall Street analysts rerated Amazon after the update.

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Bank of America Securities analyst Justin Post maintained a Buy on Amazon with a price forecast of $272.

Wedbush analyst Scott Devitt had an Outperform rating on Amazon with a price forecast of $250.

Bank of America Securities: Post said Amazon's move to expand same-day fresh grocery delivery to more than 2,300 U.S. cities by the end of 2025 marks one of the largest grocery rollouts in the company's history. He noted that Amazon added thousands of perishable items to its temperature-controlled logistics network. It generated over $100 billion in grocery and household essential sales in 2024, excluding Whole Foods. Post views the launch as a longer-term competitive threat to Maplebear CART, which operates as Instacart. However, he expects little immediate impact on Instacart's most profitable large-basket orders.

He pointed out that Prime members will receive free same-day delivery on orders over $25, while non-Prime customers will pay a flat $12.99 fee. Post believes Amazon's improved grocery delivery model, combined with a lower minimum order size, positions the company to deploy fresh delivery at scale without significantly hurting margins. He highlighted that the U.S. grocery market is a $941 billion market with just 13.4% online penetration, leaving a $90 billion revenue opportunity if Amazon closes the gap with broader retail e-commerce. With fresh groceries in its lineup, Post expects Amazon to boost shopping frequency, improve customer retention, and compete more effectively with Walmart WMT and Target TGT.

Wedbush: Devitt said Amazon's rollout of same-day perishable grocery delivery to 1,000 U.S. markets — with plans to reach 2,300 by year-end — marks a pivotal step in its broader grocery strategy. He noted that Prime customers will now get free delivery on orders over $25, compared with the previous $100 minimum for Amazon Fresh and $9.95 fees on all Whole Foods orders. Devitt said this expansion builds on Amazon's $9.99 monthly subscription, launched in April 2024, that offers free delivery on orders over $35 from Whole Foods, Amazon Fresh, and partner grocers.

Devitt emphasized that Amazon has historically struggled to capture share in perishables, a category dominated by incumbents like Walmart, which derives 60% of sales from grocery. He said the move is significant because groceries remain the largest retail category and are still underpenetrated online. With its nationwide network of fulfillment centers and delivery trucks, Amazon has now solved the logistical challenges of storing and delivering perishables at scale. Devitt called the market reaction — Amazon up 1%, Instacart down 11%, DoorDash DASH down 4%, Uber UBER down 2%, and Walmart, Target, and Costco COST each down over 1% — a reasonable response to the announcement.

Price Action: AMZN stock is up 1.99% at $229.04 at last check on Thursday.

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