Last updated 9th June 2016.
As Amazon launches AmazonFresh grocery deliveries to 69 central and east London postcodes today (9th June), IGD Senior Retail Analyst – Multichannel Toby Pickard takes a closer look.
UK online market
Online grocery retailing in the UK is worth nearly £9bn and we’re forecasting it to almost double by 2020.
In such an expanding market there is plenty of scope for new entrants, and the AmazonFresh launch comes after the retailer signed a deal with Morrisons who only entered the market itself in 2014. Morrisons has agreed to provide wholesale ambient, fresh and frozen products to Amazon.
Amazon is known for its online expertise, innovations and customer service. However, it will need to convince British shoppers of its grocery credentials.
Three-quarters (76%) of shoppers who have previously bought groceries from Amazon 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. However, 40% of those Amazon grocery shoppers say they would consider buying fresh food from the site in the future, which has gone up from 33% in 2014.
What does the US experience tell us?
The British version of AmazonFresh seems to be based on the US model, offering shoppers innovations such as same-day delivery for orders places by 1pm.
We have already seen PrimeNow - Amazon’s mobile app which offers one-hour delivery on everyday essentials - expand its offer across the UK, and Amazon Pantry - a service giving Prime members the option to fill a large shipping box with household essentials - was introduced to nationwide last November.
If other innovations such as Amazon Dash are introduced here, they could help to make the shopping experience faster and simpler for shoppers by allowing items to be reordered without the need to visit Amazon’s website.
The biggest challenges
Amazon’s biggest challenge will be to market itself as a grocery specialist and convince British shoppers of its expertise and fresh credentials, particularly as it doesn’t have grocery stores at present. Strong partnerships with suppliers and supply chain providers will be vital to match high shopper expectations.
Another challenge is that in the US AmazonFresh is available exclusively to AmazonPrime members and it has followed this strategy in the UK.
More broadly, there is still some work to be done to convince shoppers of the online grocery channel as a whole. Although the number of total British grocery shoppers who claim to be shopping online is increasing (29% in April, which is a record vs 20% in 2010), most continue to do the majority of their shopping in stores.
What will AmazonFresh mean for UK online grocery?
As Amazon introduces some or all of its US innovations, such as same-day delivery, or even early morning doorstep delivery, many of will be appealing to British shoppers and we would expect UK retailers to match these.
Amazon has expanded through organic growth in the US and is present in densely populated urban areas, where demand is highest. 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. For Amazon it will be more about driving loyalty and frequency of shop for its existing customers with the new service. In the meantime, retailers and shoppers will be looking to Amazon to lead on innovation that will drive the market forward.
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Related information on IGD.com