Will Amazon Fresh conquer the UK grocery market?
Amazon has announced the launch of its online grocery offering, launching Fresh in central and east London.
It’s launching into a well advanced online grocery market in the UK, with sales forecast to reach £9.8 billion in 2016, up 13% from £8.6 billion in 2015.
The UK’s consumers have taken to online grocery shopping, with 48% of UK shoppers currently buying at least some groceries online.
11% do all of their grocery shopping online, with a further 12% doing most of their grocery shopping online. These stats suggest there’s still plenty of room for growth.
Well, price and delivery will be key factors.
The big grocery brands have lost market share to discounters like Aldi and Lidl since the recession, and Amazon is likely to be able to undercut its rivals.
Indeed, analysis by Profitero (reported by Retail Times) found that Amazon’s products were cheaper than its main rivals online.
Then there’s delivery. Customers now demand more from delivery than ever before, and this is a real point of differentiation between retailers.
The new Amazon grocery service allows customers to choose a one hour delivery slot between 7am and 11pm, seven days a week, while it also offers same day delivery.
It has competition here though. As covered in our Grocery Retail Digital Sector Report, Ocado for one has been investing heavily in technology to optimise its delivery offering.
For example, it has developed its own route optimisation software, which helps its delivery trucks drop off orders on time by accounting for predicted traffic delays. Also, the company’s IT department employs more than 350 engineers and specialists who create solutions in areas such as vehicle tracking, industrial automation, data analytics and robotics.
Where Amazon may have an advantage is in the bundling of its various services to ‘lock’ customers in. A combination of Prime, Fresh, millions of existing account holders (with saved payment details) and convenient delivery will be powerful.
The threat of Amazon from delivery also partly explains the Sainsbury’s takeover of Argos. Argos has the delivery infrastructure in place to rival Amazon’s offering, while also allowing a nationwide reach.
There’s no doubt that Amazon will be up against stiff competition in the UK, but few would be foolish enough to bet against it.
Our Grocery Retail Digital Sector Report contains an analysis of the grocery retail sector, with a focus on its digital evolution and related trends which are impacting the major UK players in this space.