The monumental proposed merger between Sainsbury’s and Asda has surely caught the attention of Amazon founder Jeff Bezos.
Amazon has made a push into UK grocery over the past few years. It struck a supply chain deal with Morrisons in 2016 and launched its Amazon Fresh grocery offer the same year, which it has been growing for the past two years.
It also snapped up US grocer Whole Foods last year in a signal of its global intentions in the food sector.
Concern may be growing that the planned Sainsbury’s-Asda merger will create a duopoly in UK grocery between it and Tesco; however, Amazon is not likely to lie down in the face of such competition.
Morrisons is the obvious target
Buying power is key in the grocery market.
Amazon was found to be cheaper than the big four grocers in research carried out by Profitero for Retail Week, not long after its launch. This price position could be put under threat by the new Sainsbury’s-Asda group.
Sainsbury’s chief executive Mike Coupe has pledged to cut prices by 10% following the proposed merger.
Online grocery shopping is still in its infancy, and without a large store estate, Amazon has struggled to build scale in the UK.
“Morrisons is the fourth largest in the UK by market share, providing the necessary scale for Amazon to ramp up its physical presence”
Morrisons seems the obvious candidate should Amazon follow in Sainsbury’s footsteps. The grocer is the fourth largest in the UK by market share, providing the necessary scale for Amazon to ramp up its physical presence, which has so far been limited to seven Whole Foods stores in London.
Additionally, unlike Whole Foods, Morrisons produces over half of the products it sells, enabling it to rapidly adjust stock to meet demand, and it has more control over pricing to compete more effectively with discounters like Aldi and Lidl.
Partnership already in place
Amazon and Morrisons already have an established relationship, with a wholesale supply deal in place since 2016.
Having dabbled with online grocery before, the Morrisons wholesale deal gave Amazon a more viable and scalable option for a complete food offer. This enabled the online giant to attract more shoppers to its Amazon Fresh service and helped to expand Morrisons’ ecommerce proposition.
This is evidence that both parties can work in tandem to gain mutual benefits – a positive pre-cursor if a merger or takeover was to take place.
Meanwhile, Morrisons has struggled to gain a footing in the convenience sector in which Tesco and Sainsbury’s dominate.
“A potential merger could see this speedy delivery rolled out on a wider basis to complement Morrisons’ bricks-and-mortar business”
Convenience in delivery is one of the many areas where Amazon excels. A shift away from the c-store sector to focus on online may make sense given the undoubted success of Amazon’s next-day, same-day and even one-hour delivery services.
A potential merger could see this speedy delivery rolled out on a wider basis to complement Morrisons’ bricks-and-mortar business.
Its physical stores could also provide a platform for Amazon to bring innovations such as its recent trial of checkout-less shopping to the UK – although this is at odds with Morrisons’ current focus of scrapping technology such as self-service checkouts in favour of more shopfloor staff.
If Amazon can combine its technology and fulfilment credentials with Morrisons’ affordability and physical scale, Sainsbury’s and co could have competition on their hands.
- Ryan Doherty is an analyst at Retail Week Prospect