Amazon gets Fresh - game over for the online grocery market?

Profile picture for user slauchlan By Stuart Lauchlan June 8, 2016
Summary:
It's taken its time about it, but Amazon's on the move with its Fresh offering attempting to disrupt the online grocery business in the UK.

Amazon Fresh
After 18 months of inertia, Amazon’s assault on the online grocery market is gearing up, with expansion of the Amazon Fresh service in the UK today and plans to move into Germany as well as new US cities, such as Boston.

Amazon first launched a fresh food delivery service in Seattle way back in 2007, but has only expanded its reach out to parts of Washington State, California, New Jersey, New York City and Philadelphia since then. The principle reason for this has been the logistical challenges of sourcing and handling produce.

There had been some speculation that the firm would make a move on the UK market through acquisition, buying out an established carrier such as Ocado, for example. But in February, a surprise deal was struck with bealeagured supermarket chain Morrisons to offer its own-branded products.

This is something of a win-win for both parties. Morrisons has, as we’ve documented, consistently screwed up its own digital offering, while access to the Morrisons inventory means that Amazon can compete against white-label brands from other supermarkets.

So, from today, Amazon Prime members in 69 postcodes across central and east London can order same-day deliveries on 130,000 fresh and frozen grocery items. One-hour delivery slots between 7am and 11pm seven days a week are on offer, with orders received before 1pm guaranteed to be delivered by 11pm. Amazon Prime customers are looking at paying an additional £6.99 a month. which includes unlimited delivery for orders above £40. Deliveries under that level will cost £3.99 each.

Amazon Fresh will also carry branded items from the likes of Coca-Cola, Kellogg’s, Danone, Warburtons, Walkers and Yeo Valley and is also offering a delivery service for 50 independent food retailers and artisan grocery providers, such as FishWorks, Konditor & Cook and Bad Brownie

Don’t expect to start seeing Amazon Fresh vans on the road however. The deliveries will be managed in the first instance using the existing Amazon Logistics operation. Vans will not be branded as Amazon Fresh but will be fitted with separate frozen and chiller crates.

Softly, softly

The firm has been cautious in its UK expansion to date. It began selling chilled and frozen items via its Prime Now one-hour delivery service in certain areas last September. This was followed in November by the launch of Amazon Pantry in November, offering everyday household products to Prime members nationwide for a fee of £2.99 per box.

If you’re not in one of the 69 London postcodes, there’s no indication as yet of how long it’s going to take to be able to sign up. AmazonFresh vice president Ajay Kavan said:

We are launching with a comprehensive offer in a limited area and will take our time to hone and improve our service based on our learnings and feedback from our customers. We will be very methodical and considered in how we roll this service out further in the UK.

But it’s clear that expansion is now underway. Boston’s the next US city in line, while Berlin is likely to be the next major non-US city on the rollout list. Germany is Amazon’s second-largest non-domestic market, but is immature when it comes to online grocery. Native brands Aldi and Lidl haven’t made online a priority, focusing more on the deep discounter model.

Not that Amazon can expect an easy ride, in Europe or in the US. Start-up jet.com is offering online groceries in a pilot involving 875 Zip Codes in total spread throughout New York City, New Jersey, Connecticut, Pennsylvania and Washington, D.C. It can’t match Amazon’s same day delivery promise however, not using couriers.

Over at Walmart, customers of grocery.walmart.com might find the weekly shop turning up in an Uber. The retailer plans two test programs, one using Uber, one using Lyft. Customers will order online, select a delivery slot and pay an additional charge, probably around $10. After the order is put together, Walmart staff will then ring out for an Uber or Lyft driver to come and pick it up.

My take

Sadly I’m outside the postcode zone for Amazon Fresh for now. Having just had the most appalling experience with Ocado - I won’t go into detail, but suffice to say I almost called the police! - I’d be very interested in testing this out.

It’s too simplistic to assume that Amazon’s entry to the online grocery market will automatically result in massive disruption in what is an already very febrile retail sector in the UK. This week’s weak financial results from J Sainsbury is a case in point and another indicator that the online business is still up for grabs. Online revenue there grew 8.8% for fiscal 2015-16, but average basket size declined 4% year-on-year.

There’s everything to play for. I still wouldn’t rule out Amazon eventually deciding that making a move on Ocado would be its best option, but for now it’s clearly proceeding methodically and carefully. Looking at the unholy mess that Morrisons made of its own digital offering, that’s very wise.