Online powerhouse Amazon is taking on the big grocers with a free delivery service. Here, Retail Week’s executive editor and editor debate whether the new offensive will change the grocery landscape.

George MacDonald

George MacDonald, executive editor, Retail week

Amazon’s prowess should never be underestimated, but the etail goliath’s latest initiative to grab stomach share in the food market leaves me underwhelmed.

Over the years, Amazon’s obvious appetite for a slice of the grocery pie has sparked headlines along the same lines as today’s. That was the case when it sought to tickle UK shoppers’ tastebuds by launching Amazon Fresh in the UK and when it bought bricks-and-mortar specialist Whole Foods Market in 2017.

While Amazon has established a niche food business, helped by tie-ups with grocers including Morrisons, it has not moved the dial so far. Today’s announcement may not be the game-changer that some claim.

The expansion of Amazon Fresh is full of caveats. Customers must be members of Amazon’s Prime subscription service and they become eligible for free delivery only when they spend £40 or more.

“The etailer has put its established competitors on notice – and no doubt they will be bolstering their armouries”

That’s not a large sum in terms of a weekly shop, but I wonder how much of that there is on Amazon Fresh and how much more likely it becomes as a result of the changes?

Amazon’s service, impressive as the speed may be, is surely more likely to appeal for treats and specialist products that can be harder to come by in supermarkets, or for forgotten items and dinner party menus.

The service, while it will be rolled out nationwide, is only available at present in London and the South East. The etailer has put its established competitors on notice – and no doubt they will be bolstering their armouries, whether on price or digital capabilities, to ensure continued appeal in the face of Amazon’s offensive.

Traditionally in grocery, bananas have played an outsized part – always available to signal a well-stocked store and competitively priced as a known value item.

A search on Amazon Fresh quickly brings them up. A pack of five Fyffes Fairtrade ripen at home costs £1. A pack of five on Morrisons’ website – not Fairtrade but Rainforest Alliance certified – costs 69p. No doubt other comparisons could be made that show Amazon to better advantage, but the price difference on such a supermarket basket staple could make an impact on price-sensitive consumers as they ponder a full shop with Amazon, even though it may not deter time-pressed city residents or Surrey’s stockbroker belt.

“Amazon is a force to be reckoned with but it has not yet managed to be a game-changer in UK food retail”

What Amazon does not have to the extent of any of the big four grocers is control of the food supply chain. How easy will it be for the etailer to flex supply according to demand, able to turn on the supply of strawberries and salads in summer or guarantee turkeys for Christmas?

Many of the suppliers it works with are comparatively small, even though it has Booths and Morrisons on its roster, so capacity will likely need to be massively bulked up if the offer is to be available nationwide.

Online is still a startlingly small proportion of grocery sales – it has doubled over four months to account for about 14% of the total, according to Shore Capital. That rate shows momentum and some online buying will outlast the pandemic – but the bigger point is that it has taken a pandemic to reach that level, still dwarfed by sales through shops.

That partly reflects the fact that during the outbreak, grocers’ online businesses faced unprecedented demand. So there is certainly scope for Amazon to build an online food customer base.

But as then-Amazon executive Ajay Kavan said in 2016 as he unveiled Fresh: “The bar in grocery retailing is exceptionally high. The supermarkets and grocers are among the very best retailers in the world.”

That remains as true now as it was then. Amazon is a force to be reckoned with but it has not yet managed to be a game-changer in UK food retail. Will today’s announcement transform the landscape? I doubt it. If Amazon wants to be a real force in food, surely it should acquire a big grocer. 

Luke Tugby

Luke Tugby, editor, Retail Week

Many observers will argue that, when it comes to food retailing in the UK, Amazon’s bark has so far proven far worse than its bite.

Amazon Fresh launched to much fanfare in summer 2016 but has struggled since then to gobble up market share in the manner that many thought it might.

Today, Amazon has shown its teeth. Its move to offer free home grocery deliveries for Prime members is a ruthless one that shows it means business. 

The timing of the strategic shift is significant. Amid the coronavirus pandemic, the UK’s online grocery market is forecast to grow 76.2% to £19.5bn by the end of 2020 – and Amazon wants a slice of that.  

The etailer would have been rubbing its hands as it watched pureplay rival Ocado blow its big opportunity to bring in swathes of new online grocery customers during lockdown. Now, it is ready to pounce. 

“To assume this will be an easy ride for Amazon would be to do a huge disservice to its mainstream grocery rivals”

Offering free deliveries on orders over £40 seriously turns the screw on traditional rivals like Tesco, Sainsbury’s and Asda, which are already struggling to make the economics of food ecommerce stack up. 

The stark reality is that Amazon can afford to make a loss on its online grocery operations. The big four cannot. Attempting to compete with Amazon’s free delivery proposition would be to play into its hands.

That leaves the established order on increasingly shaky ground. As we enter a recession, saving a few pounds on each delivery could be enough to woo some shoppers away from rival grocers and into Amazon’s clutches.

Coupled with its same-day delivery proposition – customers in some areas will be able to order until 9pm for delivery before midnight – Amazon Fresh quickly becomes an enticing prospect for time- and cash-pressed consumers.

Winning their wallets will be no gimme, of course. To assume this will be an easy ride for Amazon would be to do a huge disservice to its mainstream grocery rivals that have served shoppers tremendously during the pandemic.

“Today has confirmed beyond any doubt that Amazon’s grocery ambitions run as deep as its pockets”

But Amazon is well-positioned to strike. Its ownership of Whole Foods and supply partnerships with Morrisons and Booths have helped it establish an impressive mix of 10,000 fresh, chilled, frozen and ambient products. 

It already owns 14 depots, purpose-built to service its grocery ambitions in Britain.

Perhaps most worryingly for Amazon’s grocery rivals, it is estimated that almost half of all people in Britain already have access to a Prime membership, meaning they could start benefiting from free grocery deliveries today without having to lift a finger. 

I have been a Prime member myself for several years, but have never purchased food from Amazon before. Following today’s move, I will certainly be looking at what they have to offer. You can bet your bottom dollar I won’t be the only member doing so. If Amazon serves those new customers well, it could win them over for good. 

Admittedly, it is only Prime members in London and parts of the South East who will be able to try Fresh for free immediately – but make no mistake about it, Amazon plans to roll out this proposition at pace to other cities. Manchester, Birmingham and Edinburgh are understood to be top of its list.

Today has confirmed beyond any doubt that Amazon’s grocery ambitions run as deep as its pockets. Its supermarket rivals are in for one hell of a food fight.

Read more: Deep dive - Has grocery retail changed forever? 

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