Recently rumours came to light online that Amazon Fresh is expanding into the UK. For those who have not seen this, it is Amazon’s first expansion into the fresh grocery delivery market. Amazon Fresh currently only operates in Seattle, California and New York but if the online rumours are true Amazon is looking to expand this service to London before the end of the year.
The benefits for Amazon
The benefits for Amazon are obvious, IGD recently valued the UK grocery market at £177.5 billion and Amazon would be negligent to not investigate how they can get a piece of this pie (If you excuse the food based pun). Amazon Fresh is rumoured to be worth more than $15.4 billion dollars in the US where the grocery industry values of $1 Trillion. It is worth noting that the US has not embraced e-commerce as much as the UK. With 9% of retail taking place online in the US compared to 18% in the UK. These figures show how attractive an expansion into the UK is to services such as Amazon Fresh.
Competition vs Domination
Amazon already operates in a wide spectrum of industries, and their presensce has had differing on each of those markets. Amazon already operates in a number of industries including:
- Retail goods
- Home delivery
- Amazon FBA
- Digital content & Media
- Computing & Software services
- Books and Offline media
- Donation Management
- And A LOT more
In some of these industries we have seen competition rise to the challenge and fight back against Amazons dominance such as Netflix vs Amazon Instant Video. Meanwhile for some industries Amazon has dominated, removing all chances of competition such as the book industry which is now totally reliant on the Amazon marketplaces.
Changing The Industry
I predict for the grocery industry, Amazon Fresh will revitalise a stagnant market. This arrival of a new major player could push the grocery market into a new era. KPMG commented back in 2014 how the grocery sector in the UK is “One of the most competitive and cutthroat in retail” but went on to say “it also risks being one of the most unhealthiest, with demand flat-lining and over capacity eroding profitability”.
I strongly believe that the arrival of Amazon Fresh could change the face of the online grocery marketplace but how this will change is very unpredictable. KPMG already recognised that “Drive through supermarkets and free doorstep delivery would offer consumers the ultimate in convenience” and I believe this is where Amazon Fresh would come in, with their pre-existing infrastructure and reputation for cheap and reliable service. Amazon Fresh could have the same effect on the home delivery sector that Aldi & Lidl had on the large superstore sector. By driving prices down and reducing the importance of customer service in place of price and convenience.
Selling on Amazon Fresh
So that is how Amazon Fresh will affect the consumer, but what about the other party involved in this, the merchants. For many fresh food suppliers Amazon fresh is an exciting alternative to the pre-existing buyers such as Supermarkets or Hospitality (e.g. resturants and cafes). But for those companies I offer a word of warning, just like Amazon comes into this industry with a very high standard for quality and delivery. It also comes with a reputation for being strict with merchants and requiring high levels of compliance, but for those sellers who make it past these hurdles a huge amount of growth and profits could be on offer.
As it currently stands, no details are available for how Amazon UK will work with merchants but in the US re/code comments “Amazon takes a relatively old-school approach, buying up groceries in bulk and storing them in warehouses around the country.” Meaning Amazon Fresh operates a similar set-up to its current Amazon Vendor Central where Amazon buys directly from merchants and sells on the goods under their own name.
The Amazon Fresh Effect
In conclusion, the launch of Amazon Fresh will mean a drastic change in the UK online grocery market with some great opportunities for pro-active merchants and early-adopters to expand their customer base and start selling specialist goods by bulk rather than individually. A note of caution though, this agreement will be on Amazon’s terms and merchants will have to play by their rules!
We would love to know your thoughts on the expansion of Amazon Fresh, are you excited for the change or worried about the ramifications for the industry and merchants in particular?