Friday, July 31, 2020

Amazon challenges UK supermarkets with free grocery delivery

Amazon challenges UK supermarkets with free grocery delivery

Amazon will offer free grocery delivery to its Prime members across the UK by the end of the year, threatening efforts by supermarkets to profit from the boom in online shopping during the pandemic.

Previously, the Amazon Fresh service was available for an additional £3.99 a month charge and was limited to around 300 postcodes in mostly affluent areas of London and the South East.

But the company said on Tuesday that Amazon Fresh deliveries “will expand to millions of Prime members across the UK before the end of the year”. It added that the range would extend to “tens of thousands” of items and would be comprehensive enough for a weekly shop.

Amazon does not reveal how many Prime members it has in the UK, but market researchers at Mintel have estimated that as many as 15m Britons have signed up.

Natalie Berg, the founder of NBK Retail and co-author of a book on Amazon, said the company was “hitting the nuclear button”.

“It is one of the boldest moves they have ever made and it’s a big risk. But the Covid pandemic has presented them with an opportunity to tighten their grip on ecommerce,” she added.

“They are using the frequency aspect of food to bait people into their ecosystem”.

Amazon does not have own-label food ranges. Fresh and chilled products are instead sourced from Wm Morrison, which has substantial food manufacturing capacity, along with upmarket regional chain Booths as well as Whole Foods, which Amazon acquired in 2017. It also offers products from major food labels and a host of independent suppliers.

The offer of free delivery comes as conventional supermarkets try to rationalise the pricing of online grocery, which is usually their least profitable sales channel, amid a surge of interest in online shopping caused by the Covid-19 pandemic.

Last week, market leader Tesco said it would change its pricing structure from early August, replacing peak and off-peak charges with a flat £4.50 charge on all orders. It also revived a “delivery saver” scheme that offers free deliveries for a £7 monthly subscription or a £50 annual charge.

At the start of 2020, online grocery accounted for around 7 per cent of total UK food retail sales. By May that had risen to around 13 per cent as wary shoppers opted to order online rather than visit supermarkets.

Amazon said it would be fulfilling orders from its own network of dedicated distribution centres around the country. “We have retrofitted existing buildings and also expanded our fulfilment network in key locations in order to best meet customer demand.” Amazon declined to give more details.

Ms Berg said that few other companies could afford to swallow the cost of offering free delivery in this way. “There is a question about how sustainable it is. There is a risk it becomes too popular. It’s hard to offer free delivery and then take it away”.

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