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Amazon has slashed seller fees to try to improve its grocery selection online

The economics of selling low-priced packaged goods online are tough.

November 2, 2017

Amazon cemented its long-term interest in the grocery industry when it spent nearly $14 billion to acquire Whole Foods earlier this year. Now itís making a subtler move aimed at improving its own grocery selection online.

Amazon recently told businesses that sell non-perishable grocery items on that it was lowering the fee it charges them on items priced at $15 or less. Amazon previously charged 15 percent on all grocery items, but will now charge only 8 percent on the lower-priced goods for at least the next year.

ďTo help you list more products and keep prices competitive, we are offering you a limited-time referral fee discount on Grocery products,Ē the email said, according to a copy forwarded to Recode. ďThis fee promotion starts at 12:00 a.m. October 15, 2017 (PST), and will run through 11:59 p.m. October 14, 2018 (PST).Ē

The move could be looked at as a competition-focused one: While Walmart also charges 15 percent across the board for grocery items sold through its online marketplace, its subsidiary charges only 10 percent for most non-gourmet packaged foods, according to its website.

Perhaps more importantly, though, the fee reduction seems like an acknowledgement that itís difficult for businesses to make a reasonable profit when selling some inexpensive groceries online.

Take, for example, a business that wants to sell a 40-ounce jar of peanut butter that retails for $5.49. The easiest way to make the product eligible for the Prime shipping program is to store it in an Amazon warehouse under its Fulfilled By Amazon ó or FBA ó program.

But the FBA storage-and-shipping fee alone for this one jar would be about $4.44 ó in part because of its weight ó and thatís before you factor in the cost for the seller to make or acquire the product as well as Amazonís 15 percent commission under the previous fee structure. The economics donít really work.

As a result, sellers and grocery brands have had to come up with alternatives to sell these lower-priced grocery staples through Amazon. One popular option is selling a certain product in a more-expensive bulk pack, as you might find in a Costco or BJís Wholesale Club.