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.
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”.
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.
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?