Amazon Targets Food Delivery Startups on Their Home Turfby
Company offers free one-hour delivery in San Francisco
Pledge for no menu price mark-ups targets competing services
Amazon.com Inc. declared war on food delivery startups like DoorDash, PostMates and Munchery by striking at their geographic heart: the city of San Francisco.
On Tuesday the e-commerce giant announced its largest expansion yet of a service called Prime Now Restaurant Delivery, which guarantees one-hour delivery from more than 115 San Francisco restaurants through the company’s Prime Now smartphone app.
To undercut rivals, Amazon promised no markups on menu items or hidden service fees and said delivery on orders will be free to Amazon Prime members for a limited period.
Amazon Prime members pay $99 a year for delivery discounts as well as video and music streaming. Prime Now, which offers delivery in as little as an hour on tens of thousands of items, is available in 25 metropolitan areas. That compares to $85 a year, or $8.95 per month, for a new subscription plan from Munchery, which delivers meals prepared by chefs.
San Francisco becomes the eighth city where Amazon has rolled out the service, after San Diego, Austin, Chicago, Los Angeles, Portland, Baltimore and its hometown of Seattle where it launched restaurant delivery in September.
After raising hundreds of millions of dollars in venture capital from prominent Bay Area firms including Khosla Ventures, Matrix Partners and Menlo Ventures, San Francisco-based delivery startups are struggling to make money, forcing some to experiment with new business models and others to cut costs. SpoonRocket, a delivery startup in Berkeley, California, shut down in March.
Restaurant delivery helps Amazon add volume and eliminate demand gaps to make its growing instant delivery service run more efficiently, said Colin Sebastian, analyst at Robert W. Baird & Co. Inc. Food delivery startups have customers who would probably pay for Amazon Prime subscriptions, so Amazon is targeting them, he said.
"Because it’s so hotly competitive, it makes sense for them to try something new and different to carve out market share," Sebastian said.