Grocers brace for food delivery fight as Amazon rolls it in with Prime
Web giant’s expansion of its Fresh arm poses new headaches for the big four players, writes Laura Onita
If I were running a traditional supermarket chain, I would be worried. Speculation has been rife for a while about what Amazon’s next move will be as it tries to muscle in on the grocery market in Britain. Now we know: free delivery included as a service with Amazon Prime.
The American e-commerce powerhouse is offering consumers the option to shop for goods such as bread, artisan cheese and lavatory roll on its website and not pay an iota.
At the same time, it is estimated that around 43pc of Britons have access to the membership scheme.
“For Amazon, it’s a natural progression to try to bring everything into one banner,” says Thomas Brereton, a retail analyst at research firm GlobalData.
The move has the potential to force other chains to match its offer at a time when they can hardly afford it.
Supermarkets have been battling to win customers and stay profitable in a hyper-competitive arena for years.
And just as coronavirus has made some believe that the boom in home delivery could lead at last to profits online, along comes Amazon and ups the ante again. All the big four chains charge for online orders and the profits are virtually non-existent, as the costs of picking and delivering the orders add up.
In 15 years, Amazon has singlehandedly changed the way customers think about online shopping. Before Prime launched in 2005, 48-hour shipping was unheard of. Next-day delivery is now de rigueur for most retailers. It then sent shockwaves through the industry when it gobbled up organic food chain Whole Foods for £10.7bn three years ago. It launched its “Fresh” online food delivery business four years ago in the UK and everyone has been paying close attention to it since.
While Amazon can afford to lose money to attract new shoppers to its food offering, the likes of Tesco and
Sainsbury’s, with huge fixed costs attached to their hundreds of stores, would rather not. The main challenge for the American behemoth will be to lure shoppers to its website for anything other than tools, books, kitchen utensils, gadgets and other homeware paraphernalia.
Only a fraction of the country uses the website to order food despite its existing tie-ups with Morrisons and Booths, the so-called Waitrose of the North. This has the potential to unleash a marketing and promotions war before Christmas, Brereton says, as both Waitrose and Marks & Spencer are poised to sell more online from this autumn.
It will also face logistical hurdles, such as bespoke vans and depots to store chilled food.
It does, however, already have 14 purpose-built depots to support its food arm in the UK, which lays bare the extent of its ambitions.
In contrast, online grocer Ocado has only a handful of warehouses, albeit they are powered by robots, which are quicker than the human pickers that Amazon will use. Bosses at Morrisons’ headquarters in Bradford will not be pleased to hear of Amazon’s plan either. Only in May it said it was expanding the same-day grocery delivery service it runs with Amazon as online orders jumped.
Supermarket chains would be foolish to burn through cash to be on par with Amazon. They should use their differences to their advantage and focus on what sets them apart, such as their sustainability credentials and environmental initiatives, which shoppers increasingly take into account before they part with cash.
Their other trump card is loyalty, historically stronger within the supermarket ranks – but fidelity could be fickle as the pandemic batters the consumer economy. Grocers, on guard!