By Eric J. Savitz
Instacart stock sold off on Tuesday after Amazon.com began offering a comparable grocery-delivery service that will heat up competition in the already crowded market
Amazon launched a $9.99-a-month service for consumers who are already Amazon Prime members, including unlimited grocery deliveries from Whole Foods and Amazon Fresh for all orders over $35. Other local stores are included in some markets.
As it happens, the terms are the same as those for the Instacart+ subscription service, which likewise is priced at $9.99 a month (or $99 for a full year) for unlimited deliveries of orders of $35 or more. A difference is that Amazon isn't charging any service fees, while Instacart+ members pay fees on every order, though they are smaller than for nonmembers.
Instacart stock was down 7.3% at $33.47. The company didn't immediately respond to a request for comment.
Amazon said it is offering the service in more than 3,500 U.S. cities and towns. The program includes one-hour delivery windows, unlimited 30-minute pickups on orders of any size, and other benefits.
Holders of EBT (electronic benefits transfer) cards used in social service programs can access the same program for $4.99 a month even without a Prime membership.
Needham analyst Bernie McTernan calculated that Instacart deliveries are now 8% more expensive than Amazon on a monthly basis assuming four orders a week, or 6% more for $150 orders. "Survey work shows that price is a key factor for consumers with online grocery," McTernan wrote. "As a result, we think increased competition could pressure new cohorts as well as increased churn in existing cohorts."
The analyst also said the Amazon move is a negative for both DoorDash and Uber, both of which offer their own grocery-delivery services, though the downside could be smaller than for Instacart because they have other larger businesses. DoorDash and Uber shares both were about 2% higher on Tuesday amid a broad rally in tech shares.
McTernan maintained a Hold rating on Instacart.
Gordon Haskett analyst Robert Mollins said in a research report that investors have long considered Amazon as a fierce competitor that was likely to take market share from Instacart in the long run. But he also noted that Instacart's service includes a deep roster of grocery stores and that it has been accepting EBT payments since 2020.
Mollins kept a Hold rating on Instacart, but said the selloff in response to the Amazon news seems "a bit overdone."
Write to Eric J. Savitz at eric.savitz@barrons.com
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(END) Dow Jones Newswires
April 23, 2024 12:56 ET (16:56 GMT)
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