Online retailer Amazon may only have dipped its toe into the UK grocery market with the initial roll-out of its AmazonFresh delivery service, but the ripples are likely to create significant disruption throughout the industry – especially for the big four players.
So far the service is only available to 69 postcodes in parts of central and east London, but its delivery lorries are likely to spread nationwide in the same manner seen in the States.
“Amazon has expanded through organic growth in the US and is present in densely populated urban areas, where demand is highest,” said Vanessa Henry, Shopper Insight Manager at IGD. “We expect Amazon to follow a similar strategy in the UK in the short term, which means that its impact on existing players will be limited. Over time Amazon could make an impact, but we don’t expect things to change overnight.”
However e-commerce delivery specialists Fastlane International think the grocery industry is significantly underestimating the AmazonFresh effect, along with that of a Walmart/Uber partnership in the US.
“Industry analysts are claiming today that Amazon in the UK will capture no more than 3% of the grocery market from the current big players,” commented Fastlane’s Head of Consumer Research, David Jinks MILT. “That’s probably what book sellers told themselves 20 years ago; the electronic goods market believed 10 years ago, and clothing stores five years ago. But the fates of Borders, Comet and now BHS highlight what happens when Amazon moves into your industry.”
Amazon is spending big sums on its delivery network and that means it needs more than 3% of the market to recoup its investment. It will only achieve this by getting consumers to change their shopping habits, and the online giant is offering free deliveries for the first 40 days in an aggressive attempt to attract business.
Jinks explained: “Amazon’s Prime members shop 50% more with Amazon than non-members. By tying-in the Prime and Fresh services Amazon is locking in more customers. It’s worth spending the significant sums involved in developing its logistics infrastructure if it means Amazon becomes the default online provider in yet another area of retail for many consumers.”
Amazon still has some work to do convincing the British public of its grocery credentials, thinks Henry. “Three-quarters (76%) of Amazon grocery shoppers say they don’t know the full range of food and grocery items on the retailer’s site, suggesting that a number are only using it to buy specific items and are not really browsing the full grocery range available,” she said.
But the grocery market shake-up is unlikely to end with Amazon’s entry into the market. Walmart is conducting trials with Uber in the USA to deliver food products.
“It’s a logical next step for the taxi App, which is just as suited to deliver goods as people,” said Jinks. “Walmart will be able to offer near instant deliveries on its groceries; giving it a significant advantage over competitors. We believe the UberRush and UberEats services are on their way to the UK, and the power of crowdshare Apps in the grocery delivery market will be another blow to traditional retailers.”