Dive Brief:

• Amazon plans to end its Fresh service in select areas around the country on November 30, according to Reuters.
• Customers in Pennsylvania, New Jersey, Delaware, Maryland and California reported receiving notice from the company. According to Recode, residents of Philadelphia and Los Angeles also reported their service will end.
• An Amazon spokeswoman confirmed to Recode that the company will be shutting down service in select areas, but said that customers living in cities like New York, Boston and Los Angeles would continue to have it. She said the changes are unrelated to Amazon’s acquisition of Whole Foods.

Dive Insight:

The extent of Amazon's scaling back the Fresh service is unclear at this point. According to Recode, the company has notified customers in at least five states that their service is ending. Food Dive reached out to Amazon for further clarification, though a representative was not immediately available. 

Amazon launched Fresh in Seattle in 2007 and since the has struggled to grow the grocery ordering and delivery service. It took five years for the company to expand Fresh to a second city. Over the next several years, Amazon rolled the program out to just a handful of markets, including a few international ones like Paris, Tokyo and Berlin.

The problems Amazon has had are the same ones every company in the fresh grocery delivery business faces. Delivery is inefficient, margins are slim, and building and maintaining cold storage facilities is incredibly expensive.

Still, AmazonFresh has gained many loyal customers and it’s been one of the company’s main assets in the rapidly expanding e-grocery industry. So its decision to scale back comes as a bit of a surprise.

On the other hand, Amazon has no doubt been frustrated by the slow growth of Fresh. It may be looking to reorganize the program in light of its Whole Foods acquisition, or at least drop poor-performing service areas. Although an Amazon spokeswoman told Recode the Whole Foods buy didn’t play into this decision, during Amazon’s most recent earnings call, CFO Brian Olsavsky said the company’s various grocery assets will go hand-in-hand soon.

"There will be a lot of work together between Prime Now, AmazonFresh, Whole Foods, Whole Foods products on the Amazon site, Amazon Lockers at the Whole Foods stores. So, there will be a lot of integration, a lot of touch points and a lot of working together as we go forward," he noted.

In buying Whole Foods, many agree, Amazon gained not just a grocery retailer but a chain of delivery hubs and distribution centers spread across the country. It’s possible that Amazon’s pullback on Fresh is setting the stage for the company to implement delivery across its Whole Foods portfolio.

But one thing is certain: Amazon’s scaling back of the Fresh service doesn’t signify scaled back ambition. Since it acquired Whole Foods, Amazon has begun offering the grocer’s private label offerings online, trialed its own meal kits and reduced the selling fee on grocery items costing less than $15 sold through its website. The e-commerce giant is dead set on becoming a major player in the $800 billion grocery industry and its scale, reputation for innovation and online retailing expertise make it a huge threat to other retailers.