Amazon has set its sights on the UK supermarket sector. From the Amazon Fresh initiative to its partnership with Morrisons, offering free, next day delivery to Prime customers, the arch disruptor is looking to turn the UK multiple market on its head.
Free next day delivery for everyday, household essentials will totally change consumer buying patterns, says Russell Loarridge, UK director at ReachFive, leading to a reinvigorated high street but creating a pretty bleak future for Tesco, Sainsbury’s, Asda et al.
While the ‘walk in, walk out’ Amazon Fresh stores in London may not make a ripple on the big supermarket pond, offering eligible Prime customers free, same day Amazon Fresh deliveries on orders over £40 was a clear indicator of Amazon’s plans. And those plans have come very quickly to life: with its latest partnership with Morrisons, Amazon Prime customers can now get free, next day delivery on Morrisons’ products.
Free. Next day. How are the UK supermarkets planning to compete? Amazon’s market disruption credentials are unparalleled. This is a business with deep pockets and a willingness to wait. It can afford to make a loss on every delivery for years if, in the process, it can persuade its existing legions of loyal customers to use the service for their regular consumables weekly shop, and perhaps even attract a few of the lost sheep not currently fully paid up as Amazon Prime members.
And it is not just deep pockets. This is a company with both unparalleled operating efficiency and market-leading customer engagement and personalisation. It also has perfect timing – and right now, this foray into UK FMCG and grocery retail is reflecting key trends in customer expectation and behaviour that the Amazon/Morrisons collaboration can only accelerate.
Many more people are now accustomed to buying online: around a third of UK consumers plan to carry on shopping for food online once the pandemic has subsided. At the same time, shop local has been a big trend over the past year – not just due to lockdown orders but also in response to the plethora of small independent food providers who have gone above and beyond to support customers.
In addition to the multiples’ high street convenience formats, independent food retailers – the delis, fishmongers, bakers and greengrocers — have benefitted from an upswing in consumer demand. While other retailers have closed, a number of independent food retailers have opened new high street premises during the pandemic. People enjoy the chance to buy fresh food direct from the experts – especially when local suppliers can offer the reduced food miles and farm to fork eating that are increasingly important to consumers.
The Amazon/Morrisons partnership capability to provide customers with free next day delivery of all the staples – the dull cleaning products, shampoo, tins of tomatoes, pasta and the inevitable loo roll – totally eradicates the need to visit the supermarket. Rather than heading to the out of town superstore and adding ‘not-quite-so’ fresh produce to the trolley simply for convenience, customers can receive all those dull items at home, on demand, with free delivery, and instead head to the high street for the fun bits, checking out the farmers’ market, the new deli and sharing a coffee.
UK multiples were already scaling back their large out of town supermarkets prior to the pandemic and investing in smaller convenience stores. But they have also invested very heavily in online retail – investments that need to be recouped. How? Large format stores cannot be mothballed overnight. New convenience formats cannot be accelerated. And what UK supermarket can offer free next day delivery – apart from Morrisons of course? Savvy move. So what’s the strategy?
The boss of Ocado may have shrugged off Amazon’s likely impact on the UK, but Amazon has thrown a hand grenade into the supermarket sector, that will turn the future of grocery shopping in the UK on its head.
Russell Loarridge is UK director at ReachFive