Speculation is rife across online news platforms that Amazon plans to launch its grocery delivery service, Amazon Fresh, in London this September. But with a grocery delivery market already firmly in place in the UK, is there space for the retailer's foot in our door?
The rumours, which took flight at the end of last week, were the possible cause of a sharp 7% decline in delivery service Ocado’s share prices on Friday.
Amazon Fresh is already active in various US cities, including New York, San Francisco, Seattle and Los Angeles, offering same or next-day delivery of a variety of fresh, frozen and pre-prepared foods to selected areas.
The UK’s grocery delivery system, however, is arguably ahead of America’s game, with services from Tesco, Sainsbury’s and Ocado, among others, accounting for around 5% of the UK’s food shopping (according to Re/Code).
The Times reported that a “retail insider” had said Amazon plans to target 2% of the UK’s £149bn grocery market – a figure three times the size of Ocado’s market share.
While the figure doesn’t seem vastly unattainable at a first glance, it should be noted that Ocado’s battle for that much smaller share of the market took it more than a decade to secure; the group achieved a pre-tax profit in 2014 for the first time since 2000, recovering from a £12.5m loss the year before.
The year also saw Ocado's customer base swell from from around 383,000 to 453,000; a growth of almost 70,000 customers, demonstrating that building up a grocery customer base is more of a long-term game.
With a collection of brands already well established in the UK grocery delivery market, as well as the years its taken for them to turn a profit, suggest it’s entirely likely Amazon Fresh would struggle to get its foot on the grocery ladder.
The launch of its own logistics arm is expected to save Amazon $3bn per annum, but the online retailer still posted a £37m loss for 2014, a figure it said reflects its investment in innovation.
But with projects such as Prime Air – Amazon’s quest to launch a delivery drone service – hogging the limelight, how successful would a grocery delivery operation be?
Amazon declined to comment on the rumours of Amazon Fresh’s London launch – it told The Times: “Amazon does not comment on speculation and rumour but what I can tell you is that we will remain thoughtful and methodical in our approach to expanding Amazon Fresh."
Image source: The Verge.com