Amazon takes on grocery giants in UK

09 July 2010

LONDON: Amazon, the internet retailer, is set to challenge major grocery chains like Tesco in the UK, with the launch of an online store offering free delivery on over 20,000 food and beverage products.

The brands it plans to stock include Ariel washing powder, Carte Noire coffee, Pampers nappies and Walkers crisps, along with goods from firms like Nestle and Kraft, and fresh fruit and vegetables.

Initially, it will offer 22,000 lines, and the company - which can already rival Tesco's e-commerce portal on this measure - then plans to add a range of more niche and specialist goods in the future.

Tesco currently holds a 45.1% share of the web grocery sector in the UK, followed by Sainsbury's on 14.1% and Asda on 13.7%.

Morrisons is expected to roll out its own site in the near future, and Marks & Spencer has also said it is considering a similar move.

Gavin Rothwell, research manager at IGD, argued that while the net accounts for a tiny 3% of all grocery sales at present, it is "the fastest-growing channel, and there is a lot of opportunity."

IGD estimates that online grocery sales reached £2.6bn ($3.9bn; €3.1bn) three years ago and will hit £7.2bn by 2014 as shoppers become more comfortable buying food in this way, and retailers enhance their capabilities.

At present, 13% of consumers make category purchases on the web, a figure that is expected to be jump to 40% over the next few years.

"Online grocery shopping is still a relatively new phenomenon; Amazon is looking to use the strength of its online brand and translate it into selling food," Rothwell said.

While the company launched Amazon Fresh in the US as a test project in 2007, it has now limited deliveries to its home town of Seattle.

Earlier this month, Amazon unveiled an equivalent platform in Germany, while its UK portal already contains certain food items such as hampers.

But Natalie Berg, research analyst at Planet Retail, suggested that Amazon faces major supply chain issues if it is to make inroads into a sector where "convenience is key."

"While Tesco and Ocado have one to two-hour delivery windows, Amazon don't. That could be an issue," she said.
Berg also believed that by stocking just 10% of its grocery products in-house, the potentially high delivery costs from third party suppliers could prove problematic.

"It will be useful for shoppers looking for niche products such as ethnic foods," she said, "but it will struggle to become the weekly shop and match the breadth of Tesco."

Amazon's growth has been exponential in the past decade. Last year, total global sales rose by 28% to hit $24.5bn, ten times higher than in 1999.

From an initial concentration on books and music, the retailer has diversified into clothing, electronics, toys, DIY, personal care and car accessories.

Data sourced from Independent; additional content by Warc staff