The launch this week of Amazon Fresh in London is undoubtedly another irritant for the supermarkets. The question is whether Amazon present a real threat to the UK grocery market or will it find its level as a niche retailer in the market?
From a cost perspective £6.99 a month in addition to Amazon Prime membership might be a barrier to many. But it is realistic pricing and is very convenient with same day delivery offered. Amazon deliver to every postcode in the UK but can Amazon Fresh do so? Cities will naturally be at the core of the roll-out as it offers the greatest potential and the business model is based on volume. Low margins in food and everyday low prices dictate that. It might take years for Amazon to penetrate the market, both geographically and in terms of market share, so volume could be a long time in coming, and with it, profit.
We would not expect any of the key retailers in grocery to do anything radical to happen in the short term – no knee jerk reactions on price or online fulfilment model. We would expect the scouts to be out testing the service, dissecting the model and looking for weaknesses and for opportunities to evolve in a market that is increasingly moving online.
Over time though, if a retailer is chipping away at several points of your business, there will be a tipping point at which the irritant becomes a pain. Brushing away the irritant becomes ineffective and you will regret not taking action sooner.
There is no doubt in our minds that Amazon will disrupt an already disrupted market. A launch with more than 130,000 lines, offering same day delivery, that is costed to be profitable, that operates with distribution excellence, that offers free substitutions, is not going to quietly go about its business without provoking a reaction somewhere.
Morrisons are supplying Amazon Fresh of course, which adds a little twist. Add a dash of Ocado and a drop of Waitrose and you get a recipe that could be plated up in many different ways. Sainsburys are in the process or acquiring its own distribution excellence and increased range with Argos so expect a few punches from Coupe. Asda and Tesco are both refocussing and building online convenience propositions.
We have had a price war which has quietened although not reached a truce. We predict the new war, the Fulfilment War. The new battleground will be online fulfilment: delivery price, same day delivery capability, substitution policies, convenience, range, and customer experience. Expect delivery vans facing off on your street and expect it sooner than you would have imagined.