Amazon sets sights on supermarkets with free food delivery service

Food & Drink | Latest News | Retail | South East

Amazon has announced plans to take on supermarket delivery services by increasing its online grocery department in the UK – as it sets its sights on serving millions of shoppers by the end of the year.

Online food sales have almost doubled during the COVID-19 pandemic across the UK, and many stores of all sizes have struggled to cope with the increased demand partnered with the lockdown rules.

Amazon Fresh offers same or next-day grocery deliveries for customers in London and the Home Counties – with more regions to be announced in due course.

In order to use the Amazon Fresh service, shoppers have to subscribe to Amazon Prime – and pay an additional monthly fee or a delivery charge per order. From tomorrow, the Amazon Fresh service will now be a free benefit to subscribers in these areas on orders above £40. There are more than 15 million Prime subscribers in the UK.

Russell Jones, Country Manager of Amazon Fresh UK said: “Grocery delivery is one of the fastest growing businesses at Amazon and we think this will be one of the most-loved Prime benefits in the UK. We’ve been planning this for a long time. It’s a big step up in volume. In the early days of lockdown all our capacity was being used. We’re confident that we can launch this service now at this point in time.”

Industry reaction

John Colley, Associate Dean of Warwick Business School

As if the grocery industry was not under enough pressure, this is something the established supermarkets could do without. Not only do they have high cost home delivery services and Aldi and Lidl continuing to build share at the low price end of the market, now they face competition from Amazon, who have no real drive to make money. Amazon will simply grow their service irrespective of the economics.

However it will not be so easy for Amazon. They are likely to lead the way on service and delivery standards, but have to convince shoppers they are a grocery store. The quality of their offering will be paramount. It will also take a long time to generate the supply chain economies of scale that the established players benefit from.

A consequence of Amazon’s entry to the market is likely to be consolidation amongst the big four supermarket chains. Perhaps Sainsbury and Asda were right in their merger plans, but simply got the timing wrong in terms of the CMA. Give it a year and the CMA might allow it.

The only good news for the existing grocers is that Amazon is only offering this service in the South East… for the time being.

Andrew Taylor is a partner at Aldwych Partners, and advised the Food and Drink Federation in relation to the proposed Sainsbury’s/Asda transaction.

Amazon’s expansion of its home delivered groceries service has the potential to significantly add to competition in the online groceries market. However, it’s unlikely that the Competition and Markets Authority (CMA) will accept this any time soon as a reason for allowing consolidation between the UK’s major grocery retailers.

Last year’s prohibition of the Sainsbury’s/Asda deal by the CMA was driven by concerns about its impact on customers that shop in ‘bricks and mortar’ stores as well as those that shop online. Amazon’s expansion of its online service won’t be enough to take away the CMA’s worries about the effect on competition between supermarkets on the high street if any of the UK’s major supermarket chains were to merge.

With Amazon’s initial offer seemingly focused on the UK’s major cities with high quality – and higher priced – products, it may be some time before it becomes a close competitor, even in the online market, for shoppers at Asda, Sainsbury’s and Tesco.

However, if Waitrose was ever to come on to the market, you can see an obvious buyer in Amazon, and it may well be that this is a transaction that could be cleared by the CMA.”

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