A quick bit of background
Amazon Pantry launched in November in the UK, with 4,000 grocery and household products available to Prime subscribers.
Delivery is £2.99 ($5.99 in the US) for one 20kg box of goods that you fill virtually during shopping. It’s then 99p for every subsequent box in the same order.
There’s no fresh food available, but there’s an impressive product range that Amazon is adding to over the coming months.
Analysis by Profitero, published in the Retail Times, showed that where product ranges overlap between Amazon and UK supermarkets, Amazon is considerably cheaper.
Has Amazon Pantry been received well?
I thought the most interesting response to Pantry came from US consumers who saw it as reneging on Amazon’s USPs of free and fast delivery.
That’s because although pricing is competitive for groceries, Prime users are used to free delivery, not another $5.99 on top of their membership.
Additionally, Pantry deliveries take up to four business days in the US, as opposed to 1-2 days for Prime deliveries.
In this post on Vox, one consumer feels aggrieved that one item (nappies) now falls into the Pantry category and therefore is no longer delivered for free (and not as quick, either).
However, it should be pointed out that delivery is next day for Amazon Pantry users in the UK, which fits more with the marketing message of ‘Shop everyday sizes (what you need, when you need it).’
TMW reviewed the Pantry customer experience in the UK and I garnered the following takeaways:
- Delivery could be more convenient, two boxes were combined into one 30kg delivery, which could be inconvenient for more frail customers who have to break the package down.
- Prices seemed to fluctuate regularly – though this happens at every supermarket, it may be annoying to Pantry users.
- There were a few bugs to be ironed out (e.g. all basket items suddenly listed as out of stock, but order went through fine).
- Other Prime orders arrived with the Pantry delivery, which is convenient.
The main complaint is about the absence of fresh items, but Amazon will likely tackle this next with Fresh in the UK, which is currently causing consternation in the US with its annnual $299 price tag (where it used to be free, but charge for delivery).
And of course, there’s an argument that online shopping in cities is used by some as a main weekly shop, but will always be supplemented by regular real-world shopping trips that we have been accustomed to, either in discount stores, or in smaller city stores, often for fresh produce.
Has Amazon Pantry had any impact on UK retail?
Well, most column inches were generated by the knocking knees of native retailers.
Specifically Ocado, which fears losing customers in London and whose share price dropped from 470p in mid-2015 to around 340p at the start of 2016, falling significantly since the Amazon anouncement.
However, the Financial Times quotes a Goldman Sachs analyst who points out that Amazon has never entered a market as mature as the UK for online groceries (currently 6% online penetration).
He also said Amazon’s presence may benefit Ocado, which could become a takeover target or win business supplying its tech to other supermarkets that now feel pressured.
Be that as it may, Ocado has not made any tie ups with any customers outside the UK (a target for 2015), so we’ll have to watch this space.
How are UK supermarkets responding?
Intriguingly, the same month of Amazon Pantry’s launch in the UK saw Sainsbury’s bid £1bn for Home Retail Group (including Argos).
This move was thought to be prompted by Argos’ impressive delivery and logistics, with its Fast Track service covering 20,000 products offering delivery within four hours for £3.95.
An RBC analyst was quoted in the Financial Times saying “Argos’s fee undercuts Amazon’s one-hour Prime Now service which costs £6.99, is only available within certain London postcodes and only to customers who pay the £79 a year fee for Prime membership.”
Despite Argos’ undoubted delivery acumen (it has also increased its product range to combat Amazon), Sainsbury’s move was seen as a strange one and perhaps indicative of a retailer worried about discounters like Aldi and Lidl.
What’s the end goal for Amazon?
In time-honoured fashion, Amazon is already optimising the Pantry service, with the previous TMW review stating that ‘already 16% of the products we originally spotted on Amazon Pantry in November are no longer available on the service.’
This is no doubt partly down to testing, not just stock availability.
Once the service is perfected, adding Fresh delivery would be the final piece of the jigsaw that gives Amazon the potential to own the retail delivery space.
Prime Now in London (1hr) already includes some frozen and chilled items (but it’s not fresh, per se).
Tom Furphy, former Amazon exec, put it nicely in a Fast Company article: “Think of the synergy between Prime, same-day delivery, and Fresh. When all of those things start working in concert, it can be a very beautiful thing.”
Of course, one thing that has to be cleared up by then is the pricing of Fresh, as we’ve already alluded to, which is proving difficult to get right in the US.
One thing’s for sure though, Amazon’s membership is already incredibly valuable to the company. Just check out these stats from the same Fast Company article.
Those 10 million Prime members (up from 5 million two years ago, according to Morningstar) are practically addicted to using Amazon. The average Prime member spends an astounding $1,224 a year on Amazon, which is $700 more than a regular user.
Members’ purchases and membership fees make up more than a third of Amazon’s U.S. profit. And memberships are projected to rise 150%, to 25 million, by 2017.
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