Later this summer, Amazon (NASDAQ:AMZN) will celebrate the one-year anniversary owning Whole Foods. the purchase has made people even more excited about Amazon stock because it is a real world retail option where the company has been week.
But the company isn’t new to the food business. Amazon Fresh got its start in Seattle 11 years ago. Today, the online grocery service is in 20 cities around the world including London.
You would think the later would benefit significantly from the former, and yet Amazon Fresh is struggling to deliver the goods. Its very existence threatened by poor customer service, the primary objective of Jeff Bezos and company.
“As they’ve scaled up, they seem to be making the rookie mistakes,” Ryan Fritzsche, an Amazon Fresh customer since it came to Brooklyn, in 2014, told Business Insider. “You expect them to be improving instead of [deteriorating].”
Orders are arriving incomplete, damaged, lacking freshness, an ironic twist given the service’s name, and even missed deliveries altogether.
Amazon prides itself on logistics. So continual missteps (Amazon Fresh lost 13 percentage points in the 2018 Temkin Experience Ratings and now sits at 67%, perilously close to a poor rating which is 60% or less) tell investors that home delivery of groceries isn’t easy to do well.
Amazon Fresh Is a Drag on Amazon Stock
Should Amazon Fresh be shelved? To a certain extent, Amazon Fresh was led out to pasture when it was united with Prime Now, the company’s two-hour delivery service.
The problem with the integration of the two services is that Amazon Fresh provides perishable goods and other grocery items exclusively while Prime Now mixes those items with non-food offerings such as electronics and other household items.
Add Whole Foods to the equation, and you have the potential for massive amounts of confusion. Here’s why.
Imagine that I live in Manhattan two blocks from a Whole Foods. I’m a Prime member ordering through Prime Now so I can get it within the next two hours. My order consists of organic yams from Westside Market, an Echo Dot (2nd generation smart speaker with Alexa) from Amazon, and some baked goods from Bouchon Bakery & Cafe.
That’s three different places to coordinate into one order within two hours. Not an easy task. Yet, I’m just two blocks from a Whole Foods.
The critics of Amazon Fresh’s service are getting louder. It’s possible the entire Amazon brand takes a hit as a result.
“The troubles we’ve had over the last few months have loosened the grip Amazon had on me,” Gillian Fritzsche, an Amazon Fresh customer in Brooklyn told Business Insider.
The Bottom Line for Amazon Stock
To use Prime Now, which is free, you have to be a Prime member. Amazon recently upped the fee from $99 to $119. Amazon Fresh, available only to Prime members, costs an additional $15 per month. Prime is one of the most profitable aspects driving Amazon stock.
If I were also a user of Amazon Prime and Prime Now, I’d be very confused about paying an additional $15 a month for a potentially worse service.
Why not eliminate Amazon Fresh, make Prime Now a $15 a month extra service, with Prime Later becoming its free one-day service including the former Amazon Fresh initiative.
Oh, and while Amazon’s at it, it might want to figure out how to get grocery items from point A to point B without crushing the produce.
Long-term, I have to believe Jeff Bezos knows this is a problem. How he chooses to fix it decides whether Amazon stock keeps climbing higher.
As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.