In a recent report, Bank of America Securities provided its perspective on Amazon's (NASDAQ:AMZN) announcement late last week. The e-commerce giant is expanding its grocery delivery services to include non-Prime members. This initiative, integrating Amazon Fresh and soon Whole Foods, extends two-hour delivery to over 3,500 cities across the U.S.
Previously exclusive to Prime members, the service now allows free delivery for orders over $100. Amazon is also widening its selection by including local grocers and specialty shops such as Bristol Farms, Cardenas Markets, and Weis Markets.
After spending 2023 recalibrating its grocery strategy, Amazon's recent changes, including reducing the free delivery threshold in October, signals the company may have improved delivery economics to a point where a $100 order can be closer to breakeven, according to analysts at BofA.
This year, Amazon has reported substantial growth in U.S. retail margins, increasing by 550 basis points year-over-year as it emerges from an extensive COVID-related investment cycle exceeding $100 billion. Market analysts express a cautious outlook, anticipating the possibility of a new cycle. “So far, Amazon’s grocery investment appears to be more measured, as the company seems to have a regional approach and is actively refining the economics of its store formats before making a bigger national push,” commented the analysts at BofA.
Additionally, Amazon's partnership with local grocers is expected to mitigate some of the investment demands for building supply chains and infrastructure, although analysts at BofA anticipate limited large grocer participation with Amazon given long-term competitive risk.
Analysts at BofA maintained its Buy rating and $168 price target on Amazon as they see grocery as an important driver of Amazon’s growth over the next 5 years, alongside its B2B initiatives.