‘Amazon needs more than a Tesco price match to win grocery market share’

Amazon is launching an online price-matching initiative, replicating Tesco Clubcard Prices promotions on its Amazon Fresh online platform.

The etailer will keep the price locked for at least four weeks – compared with the Clubcard Price duration of three weeks at Tesco – and will add new products every week.

The price salvo suggests that Amazon is keen to see its progress in the UK grocery market rediscover a bit of momentum.

As with Walmart’s entry into the UK grocery market when it acquired Asda in the 1990s, Amazon’s arrival initially sent ripples through the sector but its impact since then has been muted. 

In fact, it is the likes of Aldi and Lidl that continue to be more of a sizeable competitive threat to the big four.

“Data shows the vast majority of consumers who have started shopping for groceries online did so with their established physical supermarket of choice”

Amazon’s lack of momentum should not be that much of a surprise. In the UK, it is up against some accomplished competition in the grocery space, be that the incumbent supermarkets with their impressive multichannel propositions or specialists like Ocado, now partnered with M&S.

Data shows the vast majority of consumers who have started shopping for groceries online did so with their established physical supermarket of choice, thanks in part to familiarity with the ranges and promotional and loyalty mechanics.

Amazon’s entry into the market has so far been something of a patchwork affair, with lines including Morrisons, Co-op, Booths and assorted Amazon own-label, plus myriad manufacturer brands.

While this fosters a superb level of choice, it also arguably creates something of a less cohesive online offer than those provided by Tesco, Sainsbury’s, Asda and Morrisons. 

In a similar way, the absence of a loyalty scheme might not seem like a dealbreaker, but British shoppers do factor this in when they’re considering their options. Amazon Prime is clearly a powerful mechanic – but so is Clubcard. 

An additional challenge might be the fact that pre-Covid, the online grocery market was plateauing. Rather than a growth market where participants were just showing up and winning new customers, it had become an ultra-competitive and not hugely rewarding market to service.

“Amazon’s price-matching initiative is undoubtedly a step in the right direction – it will help it retain existing customers and might encourage some new shoppers to give it a try as well”

While the pandemic promoted a year or two of scorching growth that benefited all players, we are now seeing the market normalise again. IGD’s latest forecasts show online will still enjoy decent growth, at a rate of 4.4% until 2027, but the channel will be outpaced by discounters in growth rate terms and by convenience, discounters and supermarkets in absolute value terms.

Amazon’s price-matching initiative is undoubtedly a step in the right direction – it will help it retain existing customers and might encourage some new shoppers to give it a try as well. 

That said, the cost-of-living crisis is presenting headwinds for everyone and weapons like entry-level private labels, loyalty cards, promotions, meal deals and economical meal solutions are becoming more important to have in the armoury with every passing week. 

In this environment, shoppers are obviously prioritising value but Amazon, and its grocery rivals, must remember value is about so much more than price.

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