{{ searchResult.published_at | date:'d MMMM yyyy' }}

Loading ...
Loading ...

Enter a search term such as “mobile analytics” or browse our content using the filters above.

No_results

That’s not only a poor Scrabble score but we also couldn’t find any results matching “”.
Check your spelling or try broadening your search.

Logo_distressed

Sorry about this, there is a problem with our search at the moment.
Please try again later.

The deal that will see Amazon supplied wholesale fresh produce by Morrisons has fascinated the media.

Could Amazon Pantry's entry to fresh online groceries in the UK shake up the already volatile supermarket landscape?

Here are five questions raised by the deal.

1. Has Amazon arrived too late?

When Pantry was launched in the UK in late 2015, analysts pointed out that Amazon has never entered such a mature market for online groceries.

Penetration is at 6% in the UK. Does this mean it will be hard for Amazon to associate its service with fresh food, at the expense of supermarket services? 

Tesco experienced online success in markets such as Poland (where it launched online in 2012) due to lack of direct competition.

Branding and marketing may play a big part if Amazon is to push into Ocado's territory quickly.

amazon pantry

2. How soon can Amazon beef up its infrastructure?

How quickly can Amazon ramp up its Amazon Pantry service (currently rather heavy and unwieldy boxes of non-fresh stuff)?

The announcement notes that ambient, fresh and frozen produce will be supplied by Morrisons.

That means Amazon needs to quickly match Ocado, with a big fleet of refrigerated vans, goods delivered nicely in plastic bags and carried in and unloaded by the driver (i.e. a convenient experience).

Seeing as Amazon already has experience in doing this, via Amazon Fresh in the US, it doesn't seem like this poses any difficulty for the logistics giant.

As Keith Anderson from Profitero comments, "In its headquarters market, Amazon has struck similar deals with wholesalers, distributors, and restaurants to expand selection available through its Amazon Fresh and Prime Now services".

amazon fresh

Image via SounderBruce on Flickr.

3. What will this mean for supermarket price wars?

The graphic below from Profitero shows that on launch of Amazon Pantry, before the Morrisons deal, prices of mutually stocked products were 20% lower on Amazon.

It's far too early to suggest that this price difference could lead to cannibalisation of Morrisons.com sales (which is actually operated by Ocado) or even in-store sales, by this wholesale link to Amazon.

However, it certainly could escalate an already fierce price war in the grocery market.

More online shopping will only add to the main price pressures coming from the budget supermarkets.

amazon pantry prices 

4. How will Ocado fair?

Morrisons now seems to have somewhat divided loyalties between Amazon and Ocado.

Ocado agreed a Morrisons tie up in 2013, operating Morrisons.com. Since that deal, Ocado made profit for the first time in 2014, increasing this by 65% in 2015, bringing in approx £200m sales annually on Morrisons.com.

However, Ocado shares have plummeted in response to the Amazon announcement, with many claiming Morrisons is looking to strengthen its bargaining position with Ocado (as the current 25-year contract is thought to be unfavourable).

Though Ocado's logistical expertise is just as impressive as Amazon's (a buyout has long been rumoured), it still has new fully-automated distribution centres in construction and investors are obviously wary it will get caught on the hop or lose its Morrisons deal.

5. Will Sainsburys bid again for Argos?

Sainsburys recently bid, unsuccessfully, for Home Retail Group, which analysts saw as an attempt at buying logistics and delivery expertise.

If the online market gets more crowded in 2016, is it now or never for other big grocery retailers? 

Ben Davis

Published 29 February, 2016 by Ben Davis @ Econsultancy

Ben Davis is a senior writer at Econsultancy. He lives in Manchester. You can contact him at ben.davis@econsultancy.com, follow at @herrhuld or connect via LinkedIn.

783 more posts from this author

Comments (1)

Avatar-blank-50x50

Grahame Palmer, Marketing Director at All Things Ecommerce Ltd

A price war will see some attrition. Online grocery selling is expensive for FMCG retailers. Someone has to go round the store/depot and select everything. With perishables this is even more challenging. In practically all orders I've done online, there's always a couple of perishable items that seem "tired" when the boxes arrive.

Margins are therefore less than wafer-thin - unless, of course you're Waitrose, who (ironically) will weather this pendng storm.

Waitrose is unlikely to succumb to a price war - already they're more expensive but:-

1. They know their market. Customers with a higher disposable income that also like to select a couple of "luxury" items, usually available only from Waitrose.

2. The perishables are generally in better condition, so the customer has a higher degree of assurance that the products are better quality and (when perishable) will last a little longer in the fridge. When my online grocery shop includes a large number of perishables I default-buy from Waitrose. It's better to have perishables that I can trust, than have to bin 30% of them within 2 days of arrival.

Waitrose will therefore maintain a constancy here, because its shoppers want the confidence of good quality - essential if you're not personally in-store, selecting the veggies yourself. The price premium is worth it in the long run - and besides... I like Dutchy Dairy and Meats - so for me, it's Waitrose every time.

5 months ago

Comment
No-profile-pic
Save or Cancel
Daily_pulse_signup_wide

Enjoying this article?

Get more just like this, delivered to your inbox.

Keep up to date with the latest analysis, inspiration and learning from the Econsultancy blog with our free Daily Pulse newsletter. Each weekday, you ll receive a hand-picked digest of the latest and greatest articles, as well as snippets of new market data, best practice guides and trends research.