When Amazon recently announced plans to abruptly shut down the Amazon Fresh grocery delivery service in parts of nine states, it did not provide much of an explanation for the decision.

But multiple sources tell Recode that Amazon has privately laid blame on the U.S. Postal Service, which was responsible for delivering Amazon Fresh orders to customers in most, if not all, of the affected delivery areas.

Specifically, Amazon officials have told several food brands that the USPS had delivered an unreliable experience to customers with too many late or missed deliveries, according to people familiar with the discussions. With no other good delivery options for fresh food in these areas, Amazon decided to shut down the service.

These brands were also told the economics of the business were harder in the service areas that Amazon chose to shut down, because they were less densely populated.

Managers inside Amazon Fresh warehouses have also cited the Postal Service relationship as a reason for scaling back the delivery service, multiple sources said. In one instance, some workers were told that Amazon balked at new delivery rates USPS was going to charge the company for deliveries in the areas in which Amazon ended up curtailing the service.

In another case, workers were told that the Postal Service’s inability to deliver groceries in disposable paper bags was a problem.

An Amazon spokeswoman declined to comment. A U.S. Postal Service spokesman referred this reporter to Amazon.

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In early November, Amazon Fresh customers in parts of at least nine states received an email from Amazon stating that it was shutting down the service in their area by the end of the month.

The grocery delivery service costs $14.99 a month on top an Amazon Prime membership, which runs $99 a year. Customers who place orders in the morning receive their delivery of perishable and packaged foods on the same day; later orders are delivered the following morning.

Amazon created the service in 2007, but did not expand it outside of its hometown of Seattle until 2013. Since then, the service had grown to a bunch of cities across California, as well New York City, Boston, Philadelphia, Chicago, Dallas and Miami, among others. It is still live in sections of these cities.

In some markets, Amazon handles the delivery of groceries itself in green Amazon Fresh trucks or outsources it to local delivery companies. In others, the Postal Service takes on the delivery role.

The grocery partnership between Amazon and the U.S. Postal Service began with a trial in San Francisco in 2014 and the Postal Service won approval for an expanded multi-year test later that year. The Postal Service also instituted Sunday deliveries of non-grocery packages for Amazon several years ago.

The move to scale back the Fresh service was surprising to some in the wake of Amazon’s acquisition of Whole Foods, which signaled a long-term investment in the grocery market. Dozens of disappointed Amazon Fresh customers reached out to Recode in the wake of news.

Amazon’s chief financial officer said on a recent earnings call that there would be more cooperation over time between Whole Foods, Amazon Fresh and Prime Now, which is a one-hour delivery service that offers a limited selection of fresh groceries. An Amazon spokeswoman previously told Recode that the Whole Foods acquisition did not play a role in the decision to end Amazon Fresh deliveries in certain markets.

—By Jason Del Rey, Recode.net.

CNBC’s parent NBCUniversal is an investor in Recode’s parent Vox, and the companies have a content-sharing arrangement.

Source: Tech CNBC
Amazon has privately blamed the US Postal Service for grocery delivery issues that led to Amazon Fresh changes