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Is Amazon ready to inject Fresh competition into the grocery market?

The news that Amazon Fresh is planning an imminent launch in the UK has prompted a raft of speculation around the impact it could have on more established online retail and logistics businesses.

The fact that the retailer will be going head-to-head with such well-known and lucrative businesses as Ocado, through to high street stalwarts including Tesco and Sainsbury’s, is certainly interesting, and a bold move bearing in mind the already high levels of competition in the market.

But realistically, once the dust settles, how much effect will it actually have on our existing food retailers? 

Online groceries make up just 5 per cent of the UK market, but the main supermarkets are all highly experienced in e-tail as well as traditional bricks-and-mortar commerce.

This is not a new market for them, and the majority have long evolved to embrace changing consumer shopping and spending patterns.

Global precedent

That said, however, the margins in food retail are very thin, so any entrant into this market will need to think about how to maximise its efficiencies.

Amazon has already experienced some success in the US, due in part to the combination of an immature market and its ability to prosper from a burgeoning appetite for online consumption.

“Amazon Fresh his aiming for 2 per cent of the 5 per cent market share for online groceries. That would make it three times bigger than Ocado”

Notably, the company is slicker and more efficient than our UK supermarkets and, when it comes to online sales, will be in a far better position to take advantage of cross-selling opportunities.  

Amazon recently revealed that it has invested more than £1bn in its UK operations to date, with an extensive portfolio of distribution centres around the UK. 

However, with speculation that Amazon Fresh will be using third party vans and drivers for its grocery deliveries, it will be interesting to see how the Fresh model operates in practice.  

Ambitious aims

Practicalities aside, Amazon Fresh has been extremely aggressive in its targets, aiming for 2 per cent of the 5 per cent market share for online groceries.

That would make it three times bigger than Ocado.

In an already competitive market, this alone would be a cause for concern for many existing UK operatives.

It’s no surprise the announcement that Amazon Fresh would be making its move coincided with a fall in Ocado’s share price.

So how much of an impact will Amazon Fresh’s entry into the UK have on our existing supermarkets?

Personally, beyond the initial flutter of interest, I’m not sure it will have an impact.

It’s a very risky move by Amazon and I think the company will find the UK market far harder to penetrate than the US.

Focusing on expansion in the UK based purely on the fact that we already have a well-established existing online grocery market may well backfire.

Certainly, it will make existing supermarkets wary, inject yet greater competition and drive more customer incentives, but I don’t think supermarkets will be pressing the panic button just yet.

Kevin Chrisp is sector leader for retail at EC Harris, part of Arcadis in the UK

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