Should Tesco fear Amazon?

The e-commerce giant launches checkout-free bricks and mortar store.

by Adam Gale
Last Updated: 22 Jan 2018

Well yes, everyone should fear Amazon. It’s the internet business equivalent of the Roman army circa 50BC, invading industry after industry, crushing all opposition, and then moving onto the next victim.

Groceries are now firmly in Amazon’s sights. First, it made forays into bricks and mortar stores, and fresh groceries delivery, including a deal in the UK with Morrisons. Then it forked out $13.7bn on upmarket US chain Whole Foods. Now, after a year long-trial, it’s opened a grocery store, Amazon Go,  that doesn’t require a checkout.

The idea is simple: a terrifying array of cameras plus one mean machine learning algorithm means the store knows what you’ve put in your basket. All you have to do is swipe a card linked to your Amazon account when you enter the turnstiles, shop and then leave. Amazon will then bill you for what you took.  It’s a shoplifter’s worst nightmare.

But is it also a nightmare for the likes of Tesco, Sainsbury’s and the other established grocers?

Maybe, maybe not. The good news for grocery retailers is that food is not the same as books or electronics, the two most obvious examples of Amazon’s conquests. In those markets, the tech giant entered with a superior business model, rendering so much of the incumbents’ acquired retail expertise obsolete.

But the very fact that Amazon is entering the world of bricks and mortar stores – despite having operated an online-only fresh groceries business in the US for a decade – indicates quite clearly that a purely online disruption is not on the cards.

Checkout-free technology does represent an advance – and theoretically a competitive advantage – but it’s an incremental innovation, and one that the dedicated grocers could feasibly match.

Amazon still represents a uniquely formidable competitor though, armed as it is with vast resources, cutting edge technology, top-in-class logistics expertise, an existing relationship with millions of customers and no need to pay dividends.  

It also doesn’t need to cut a swathe through the sector to be successful, as it did with books. With the right business model, Amazon could still pose a significant threat, in much the same way as Aldi and Lidl have in the UK – only don’t expect it to take it 20 years and a global financial crisis to do so.

Image credit: SounderBruce/Wikimedia Commons


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