Amazon is testing a 2-hour grocery delivery service from Whole Foods

AP/Mark Lennihan

• Whole Foods and Amazon are testing a service that provides two-hour delivery directly from Whole Foods stores.
• It's part of Amazon's efforts to sell more grocery items online and expand its Prime Now two-hour delivery service.

Amazon and its subsidiary Whole Foods have started a trial program in four cites around the country to deliver groceries and other goods directly from Whole Foods. The trial is starting in Austin, Texas; Cincinnati, Ohio; Dallas, Texas; and Virginia Beach, Virginia.

Amazon said in a press release that it plans to roll the program out to more cities later in the year.

"This is where we're starting," Stephenie Landry, vice president of Prime Now, told the Seattle Times. "We're going to be expanding."

The program is available exclusively for Amazon Prime members through the Prime Now two-hour delivery service. Delivery is free as long as the order size is over $35, and customers use PrimeNow.com or the Prime Now app to order.

Here's the idea: instead of stocking Whole Foods groceries in a warehouse and starting Prime Now deliveries from there, the new program uses a Whole Foods store as a depot.

Whole Foods' private-label brand, Everyday Value 365, is already available on Prime Now delivery in some markets, including New York. This program will have a wide selection of Whole Foods items on offer - conceivably, nearly the whole store could be stuffed into a Prime Now bag. It'll include "the vast majority of things that people buy most frequently," Landry said.

That includes items like fresh produce, seafood, meat, flowers, baked goods, and dairy products.

A move like this was expected by industry experts. Buying data shows that Whole Foods' brand is one of Amazon's strongest weapons as it tries to take a bigger piece of the grocery pie. Amazon also realigned its Prime Now and Amazon Fresh divisions under the leadership of Landry at the end of 2017.

A 2017 Morgan Stanley survey of Prime members shows that Prime Now grocery orders are up. The bank wrote in a note to investors that 48% of people using Prime Now are ordering grocery items with it - more than they are ordering more traditional e-commerce offerings.

The survey was done prior to the Whole Foods acquisition's close and before its products were put on Amazon, so it's possible that adoption has increased even more.

It's tempting to look at Prime Now as Amazon's vehicle for dominating grocery, an area where it's struggled previously. Combining Whole Foods' nationwide grocery footprint and selection with Prime Now's delivery logistics to provide free, two-hour delivery could prove an unbeatable combination.

Some Whole Foods stores already offered delivery through a partnership with Instacart. It's unclear if that partnership will continue.

EXCLUSIVE FREE SLIDE DECK:
The Future of Retail 2018 by the BI Intelligence Research Team.
Get the Slide Deck Now »