Credit: Atomic Taco/Flickr

Why Amazon Fresh will struggle to topple the UK's big supermarkets

UPDATE: The ecommerce behemoth has finally announced it is launching a fresh grocery service in the UK, but it faces an uphill struggle.

by Jack Torrance
Last Updated: 09 Jun 2016

Britons love to shop online. People in the UK spend more on ecommerce transactions per head than any other major country in the world, according to eMarketer research from 2013. Four in five Brits bought something online in 2014, compared to just 22% in Italy.

But there’s one area of retail that is still struggling to tempt people away from the high street and onto their computers – food. While online-only supermarket Ocado may have built itself a committed fanbase of suburban avocado munchers and is finally making some money, 95% of Britain’s groceries are bought in bricks and mortar stores.

The online divisions of Britain’s major listed supermarkets Tesco, Sainsbury’s and Morrisons are all growing, but not exactly in leaps and bounds (Morrisons only got in on the action towards the end of 2013). Britain’s fastest growing grocers, Lidl and Aldi, don’t sell fresh food online at all. They may have shifted from big weekly shops to regular trips to the convenience store down the road but consumers are still hooked on bricks and mortar.

But Amazon is hoping to change all that. Today it confirmed the worst-kept secret in retail – that it was planning to roll out its Fresh grocery delivery service in the UK. It will sell more than 130,000 products, including major brands and artisan fare from Borough Market and Notting Hill, with one hour delivery slots available between 7am-11pm. At first the service will just be available in parts of central and east London.

Amazon has had plenty of successes in its 21-year life but groceries won’t be an easy market to crack. Although they charge an extra few quid for delivery, the big supermarkets have struggled to make ecommerce pay because the logistics is painfully expensive. Fresh food has a short shelf life (books and DVDs don’t have a sell by date...) and has to be kept in fridges and freezers. You can’t shove cantaloupe melons and a leg of ham through a customer’s letterbox, so the delivery has to arrive within a narrow window when they will be home - making it hard to stay flexible.

The barriers to entry may be high but supermarkets aren’t oblivious to the threat posed by their new competitor. Sainsbury’s is buying Argos in a bid to become an all-selling all-delivering bricks and mortar version of Amazon - although that's more about diversification than tooling up for a fight with Amazon Fresh. Meanwhile Morrisons has gone for the ‘if you can’t beat them, join them’ approach, inking a deal to sell its products through Amazon Fresh. It still has a deal in place with Ocado, which runs its ecommerce operation, but is clearly keen to hedge its bets.

For all their faults, the Big Four (as well as Aldi, Lidl and Waitrose, for that matter) have a big edge over Amazon in the form of their shops. The reason many people have switched from occasional trips to out-of-town stores to regular visits to their local is convenience. There’s scarcely a district or town without at least one outpost of the big chains.

When people have the convenience of popping down the shops are they really going to want to swap it for waiting even a day or so for Amazon’s delivery man to come-a-knocking? Okay, it offers same-day delivery for orders before 1pm, but that will be difficult to scale (and who knows what they fancy for dinner before one...?). And when it costs more money to get a basket of groceries to your door than to buy them from a discount supermarket the economics don’t make a lot of sense either. The service will only be available to Amazon Prime members, who already pay £79 per year and will have to pay another £6.99 per month for Fresh, with a minimum order value of £40. 

To see how challenging selling groceries online is you only have to look to the US, where Amazon has been selling groceries for almost a decade – starting with its hometown of Seattle in 2007. Progress has been slow at best and the service is still restricted to the major urban areas of New York, California and Pennsylvania (as well as Seattle).

The UK is a different market, of course, but it’s hard to imagine Amazon Fresh being available outside the capital and perhaps a couple of other major cities in the near future. To begin with it will just be available in 69 postcodes within striking distance of its warehouse in Bow, east London.

The bosses of Tesco, Sainsbury’s, Morrisons and Asda will be watching Amazon Fresh with a mixture of intrigue and unease. But with the price of food continuing to fall, rising wage bills and their distinctly low-tech discount competitors showing no sign of slowing, they have plenty of bigger problems on their plates.

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