A truck pulling an Amazon Prime branded cargo container waits beside the entrance gate at Amazon.com Inc.’s new fulfillment center in Kolbaskowo, Poland. (Photographer: Bartek Sadowski/Bloomberg)

Amazon Shifting Prime Pantry Service to Subscription Model

(Bloomberg) -- Amazon.com Inc. is shifting its Prime Pantry service, which focuses on non-perishable household goods like breakfast cereal, laundry detergent and shampoo, to a $5 per month membership model.

Amazon will make the change gradually, encouraging Prime Pantry shoppers to commit to a monthly service charge that gives them free shipping on orders of at least $40, a company spokeswoman said. The current model is for Prime subscribers only and charges $6 per box, encouraging shoppers to squeeze in as much detergent, paper towels and canned food as possible. In the future, those who don’t opt for the new monthly flat rate will pay $8 per box.

Amazon Pantry launched in 2014 as an entree into consumer packaged goods, a business worth more than $800 billion a year in the U.S. It’s been tough for the world’s largest online retailer to turn a profit while offering convenient doorstep delivery of bulky, heavy household goods found in supermarkets and big-box stores like Walmart Inc. and Target Corp. Amazon’s fulfillment expenses -- the cost of storing, packing and shipping goods --increased 43 percent in 2017 to $25 billion, outpacing revenue growth of 31 percent that year.

"Grocery has been a real challenge for them," said Sucharita Kodali, analyst at Forrester Research. "They’ve not found a model that works yet. Raising the price won’t get you more customers. It gets you more revenue from a core group of loyal customers."

Prime Pantry is on track to have sales of $572 million this year, according to Stackline, an e-commerce data analytics firm that helps brands and manufacturers sell on Amazon.

Amazon plans to bring the new Prime Pantry model to different U.S. markets throughout this year. This is the latest example of the company building multiple tiers to its Prime membership, which charges $13 per month or $99 a year for delivery discounts, movie and music streaming and free photo storage. Members can also subscribe to the video and music services separately.

Subscription fees are a fast-growing revenue source for the retailer, which keeps prices low to compete with Walmart and other stores. Amazon had subscription services revenue of $3.18 billion in the fourth quarter, up almost 50 percent from a year earlier.

©2018 Bloomberg L.P.