Amazon Expands Same-Day Grocery Delivery. Walmart and Instacart Should Be Worried.

Amazon will begin same-day fresh grocery deliveries in more than 1,000 U.S. cities (AFP via Getty Images)

Grocery retail and food-delivery stocks fell sharply Wednesday after Amazon.com announced it has added thousands of perishable groceries to its same-day delivery service.

Amazon , which owns the Whole Foods Market chain, is beginning same-day fresh grocery deliveries in more than 1,000 cities and towns nationwide, and plans to expand the service to over 2,300 by year’s end, the company said.

Same-day delivery is free for orders over $25 for Amazon Prime members, and costs $12.99 for nonmembers. Prime members that don’t meet the $25 minimum can still opt for same-day delivery for $2.99.

The service is designed to complement Amazon’s existing grocery delivery services, which include Whole Foods’ online market and Amazon Fresh, the company said.

Grocery is the last frontier for Amazon. The company has been trying to break into the trillion-dollar grocery market for years, to varying degrees of success. Walmart and pure-play regional grocers such as Kroger, Albertsons, and Publix outstrip Amazon’s market share in the broader grocery category.

But the tech giant is doing much better online, giving top digital grocer Walmart a run for its money. Walmart captures about 32% of U.S. e-commerce grocery sales and Amazon is a close second with 22.6%, research company Emarketer reported early this year.

Expanding same-day delivery could help Amazon edge even closer to Walmart, and fend off other rivals such as Instacart, Uber, and DoorDash, which Emarketer found were some of the fastest-growing players in digital grocery.

“Our first reaction is that the product update today decreases the barrier to entry for Prime and non-Prime users to buy groceries from Amazon,” wrote Stephen Ju, an analyst at UBS.

Amazon shares were up 1.3% on the announcement. The Dow industrials were up 0.7% and the S&P 500 was up 0.1%.

Rival grocery and food-delivery stocks sank.

Maplebear , which does business as Instacart, plummeted 11%. Shares of DoorDash dropped 5%. Kroger was down 4.1%. Amazon’s well-heeled peers Walmart and Costco Wholesale also slid. Walmart was down 1.9% and Costco was off 1.3%.

“I’m optimistic as we roll that out to many more of our same-day facilities that that will lead to more of our customers buying perishables from us,” said Amazon CEO Andy Jassy at the company’s May annual shareholder meeting. “I think that the way people buy groceries is going to continue to evolve over time. So I continue to be very bullish on our grocery business.”

That said, Amazon’s successful takeover of the grocery category is far from assured. Although the Whole Foods business has been strong, Amazon Fresh has struggled to gain a foothold among consumers, particularly in bricks-and-mortar grocery, which remains the primary channel for grocery purchases.

The company temporarily halted opening more Fresh stores in 2023 and closed a couple of underperforming stores as it re-evaluated the best way to appeal to shoppers.

Amazon has since started rolling out the second iteration of the Fresh stores, but “it’s still early” to see long-term results, executives have said.

Corrections & Amplifications: Publix is a regional grocery chain. An earlier version of this article misidentified the company as Public.

Write to Sabrina Escobar at sabrina.escobar@barrons.com and Nate Wolf at nate.wolf@barrons.com