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Amazon Fresh grocery delivery slashes monthly fee to $0

The change should challenge Walmart, the reported leader in online groceries.

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With fee-free Fresh, Amazon hopes to deliver a lot more turkeys this Thanksgiving.

Josh Miller/CNET

Online grocery delivery has so far failed to catch on in the US, but Amazon may have found a way to convince you to try it: free shipping.

That's right, the king of e-commerce on Tuesday said it dropped the fee for its Amazon Fresh grocery service from $14.99 a month (or $179.88 a year) down to zero. You still have to be a Prime member, which costs $119 annually, to use Amazon Fresh.

The change undercuts rival Walmart's new Delivery Unlimited program, which costs $12.95 a month and was just introduced in September.

"We think this offering is going to be a game changer and will grow into one of the most loved benefits of Prime," Stephenie Landry, Amazon's vice president of grocery delivery, said in an interview.

To avoid overloading its network with new orders, Amazon decided to allow its current Amazon Fresh and Whole Foods delivery customers to start using the service for free first. Everyone else will have to request an invite, with Amazon adding new folks on a rolling basis daily. Amazon Fresh is available in 21 major markets, so you should check if your ZIP code is included before piling up an order of seafood, ice cream and milk.

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It's been a very long haul for Amazon and grocery deliveries. While the online retailer found success a lot faster selling books, electronics and toys online, grocery remains an elusive target. The company had been slow to expand its grocery network, after starting Amazon Fresh in Seattle in 2007. Amazon scaled back Fresh operations in nine states in 2017, but this year has been growing the service again, bringing it to Las Vegas, Houston, Minneapolis and Phoenix in the past few months. After buying Whole Foods for $13.2 billion in 2017, the retailer has added the high-end grocer's inventory into Fresh, its separate Prime Now delivery service and Amazon.com.

Waiving the Amazon Fresh monthly fee could be the jumpstart many retailers have sought to get more consumers to join the online grocery bandwagon. If that shift starts to happen, Amazon and many other retailers could decide to expand inventory and regional availability for grocery delivery, including to rural or poorer area that lack grocery choices.

The change could also help Amazon expand in the $800 billion US grocery market, helping it continue its rapid growth and bring in new Prime members, a group of over 100 million people worldwide.

But, all those potential positives won't happen if online grocery remains a niche product. About 20 years after online grocery services started in the country, they account for a mere 3% of US grocery sales, a far cry from the 20% in online sales for footwear and 40% for consumer electronics, according to a February report from Bain & Company. Added to that, analysts at Second Measure reported in August that Walmart, the biggest US grocer, was dominating online grocery, with Instacart coming in second; Amazon was third.

A good sign, though, is that food and beverage sales are the fastest-growing segment in e-commerce, according to eMarketer, so Amazon has a chance to bring in new customers just as interest is on the rise.

There's lots of competition. Instacart, Peapod and Fresh Direct all offer grocery deliveries, allowing customers to get unlimited shipments by paying flat membership fees or by paying per order. Walmart also introduced its Delivery Unlimited membership program for groceries, which is $98 a year. Walmart is also offering a new experimental service that delivers your groceries right into your fridge, at a cost of $20 a month.

Meanwhile, Amazon has offered grocery delivery mostly through two services: Prime Now, which doesn't cost extra for Prime members, and Amazon Fresh, which did. Amazon said it's now making your local Whole Foods' inventory available on its main Amazon website, too.

You'll need to order at least $35 of stuff through Amazon Fresh to get two-hour delivery at no additional cost. Under $35 orders will include a $5 fee. One hour deliveries come with higher fees.

While consumers will certainly enjoy the newly fee-free Fresh service, Wall Street may worry. Amazon's latest earnings, reported last Thursday, were weighed down by its massive spending to upgrade its shipping infrastructure and bring Prime deliveries down to one day from two.

Asked about the increased shipping costs the Fresh change should bring, Landry said: "We've always been happy to invest as a company in the benefits that we know customers love."