Amazon Prime to supply two-hour Entire Meals supply

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Prime is available in some 30 major cities and Amazon will start to chip away at the estimated $US1.3 trillion grocery market in the U.S. as its delivery capacity grows, Cowen said.

The online retail giant plans to roll out two-hour delivery at the organic grocer this year to those who pay for Amazon's $99-a-year Prime membership. Most of those - about three-quarters - get their orders delivered to their door; the rest pick it up at the store.

The deal sent tremors through the grocery business as analysts predicted Amazon's weight with suppliers could force down already thin grocery margins and accelerate a move to near-instant ordering and delivery. The service will be nationwide this year, the company said. Analysts said grocery delivery is a pricey business full of logistical and practical challenges.

One of the biggest things holding back online grocery is the option of free delivery and the speed. And then there's the issue of keeping cold items cold, and frozen foods frozen.

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The announcement gives Amazon yet another way to get groceries to customer's doorsteps. Or, like, in two hours. "There's a lot of potential here, yes, but there are also big challenges".

It's tempting to look at Prime Now as Amazon's vehicle for dominating grocery, an area in which it previously struggled. The opportunity is enormous: to make the same waves it made in books and electronics, it would have to persuade millions of customers to start ordering their groceries online.

"The suburban market has always been a conundrum for grocery delivery companies", Peterson said.

The service will be available only during the hours the Whole Foods stores are open, generally 8 a.m.to 10 p.m. Amazon is also extending a $5 discount on roses to Prime subscribers, who will be able to buy two-dozen roses for $19.99 through Valentine's Day.

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While Americans don't necessarily shop at Amazon every week, they buy food every few days.

"The ultimate dagger is Prime Now - if you can delivery groceries free, that's an entirely new bar for the grocery industry", Peterson said.

And grocery chains don't want to miss out when that happens.

As Amazon expands two-hour delivery, it could be a turning point for buying food online, according to Jitendra Waral, an analyst at Bloomberg Intelligence.

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That means you can't mix together items offered by Amazon's shop and Whole Foods' shop and expect them to be delivered together.

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