AmazonFresh still to make its mark on grocery sector, one year on

AmazonFresh still to make its mark on grocery sector, one year on

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Amazon struck fear into the hearts of Britain’s biggest supermarkets when it charged into the grocery sector a year ago this week, but experts believe it has yet to make a dent in the £9 billion a year online market.

The internet titan launched AmazonFresh in the UK last June amid great expectations that it would shake-up the supermarket sector and threaten the cosy dominance of the established players. It sent shares in online grocer Ocado tanking, while observers said Tesco and Sainsbury’s would be left exposed as it ramped up competition in the London market.

One year on from its launch, the group is still nowhere near stealing market share from the Big Four players in a notoriously tricky sector to crack. But while AmazonFresh itself is yet to make its mark, the group is unlikely to give up on its grocery ambitions.

Retail analyst Steven Dresser at Grocery Insight said: “There was a lot of panic when Amazon launched and nothing has really happened. “But they won’t give up, even if AmazonFresh loses money for the next 10 years. That’s where the fear comes in.”

Amazon’s shares surged above 1,000 US dollars for the first time on Tuesday, cementing its position as the fourth largest US company by market cap. Its financial clout will allow the group to absorb losses for its fledgling business that would put off many other start-ups. Even the biggest players have a relatively small chunk of the online grocery market, which in total accounts for just 6.5% of all UK grocery sales after 20 years.

The biggest player, Tesco, holds a 3% market share, and AmazonFresh would need to build up a customer base of three million shoppers spending on average £264 each a year to match that, according to market data specialists Kantar Worldpanel. Chris Hayward, consumer specialist at Kantar, said: “I can understand why Amazon is wanting to get a piece of this, but it’s a very challenging and concentrated market to come into.”

It took Ocado – seen as the closest rival to AmazonFresh – 15 years to make its first profit, only notching up its first bottom line surplus in 2015. Clive Black, a retail analyst at Shore Capital, said while AmazonFresh “barely flickers on the radar of market share”, it will keep chipping away at the market. AmazonFresh, which has teamed up with supermarket Morrisons in the UK, declined to comment on its one-year anniversary except to confirm that it has more than tripled its reach since launch to 260 postcodes across London, Surrey and more recently parts of Hampshire.

Mr Hayward said Kantar could potentially see AmazonFresh register on its market share league tables in three years’ time. Its target market remains fairly niche – generally young, tech-savvy professionals in metropolitan areas who want the convenience of Amazon’s one-hour delivery slots and same-day delivery.
Its loyal customer base – or “Amazonites”, according to Mr Black – will likely remain customers as they start families.

He said while Amazon is still “embryonic” in the UK food market, it is the rival that causes bosses at the big chains to have “sleepless nights”. Tesco’s deal to snap up wholesaler Booker and the takeover of Argos by Sainsbury’s last year are seen as moves to fight back against the rise of Amazon.

While AmazonFresh has not made the explosive entrance so feared last year, it has prompted the Big Four to raise the bar in terms of customer service. Mr Dresser said Tesco and Sainsbury’s brought forward their plans for one-hour delivery and same-day click and collect due to the threat of AmazonFresh.

“They’re clearly concerned,” he said. “And consumers are benefiting because of the by-product of Amazon’s service levels,” he said. Experts agree that regardless of the somewhat quiet first year since the launch of AmazonFresh, it firmly remains one to watch.

“The reality is that they’re not going away – they will just keep chipping away,” said Mr Black.

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