Amazon will leapfrog Tesco to become the UK’s biggest retailer within the next four years, new forecasts suggest.
The US etail titan’s gross sales in the UK, including revenues raked in through its marketplace, will hit £77.1bn by 2025, according to data from Edge by Ascential.
Tesco’s sales are predicted to reach £76.1bn, according to Edge Retail Insight’s new report, United Kingdom Retail Landscape and Go-to-Market Planning.
The milestone would mark a significant step in Amazon’s assault on the UK market, particularly considering that it currently remains some way behind Britain’s biggest retailer in the sales stakes.
Amazon’s UK’s revenues reached £36.3bn last year, a total that was easily eclipsed by Tesco’s £64bn.
But Amazon’s unstoppable rise is set to accelerate following the coronavirus pandemic, Edge Retail Insight’s forecasts suggest. The etailer’s sales are expected to account for 15% of all UK chain retail sales by 2025, compared to 9.1% last year.
Amazon will also gobble up a third of all chain retail sales added between 2020 and 2025, Edge predicts.
According to Edge Retail Insight’s forecasts, Sainsbury’s will maintain its position as the UK’s third-largest retailer, with sales expected to increase 4.5% to £42.2bn by 2025. Asda will retain fourth place with sales of £26.7bn.
The report also outlined the anticipated growth in the online grocery market, with online penetration set to rise from 8.2% to 10.9% in 2025.
Edge advisory research director Robert Gregory said: “The past year has seen online grocery accelerate in the UK, a market which already had one of the world’s highest penetration rates for online grocery.
“While Amazon has seen sales grow strongly, so have the larger grocers, with the likes of Tesco, Sainsbury’s and Asda all being able to expand capacity for their online services. Tesco recently revealed a 77% increase in online sales during its 2020/21 full-year results after doubling its online capacity to 1.5 million slots a week.”
Despite this strong increase, the costs incurred by grocers in beefing up their online presence have impacted earnings over the past year, as the likes of Tesco, Sainsbury’s and Asda raced to expand ecommerce capacity and meet soaring demand.
Although those grocers have sought to keep their fulfilment operations predominantly in-house, Gregory believes delivery partnerships, such as those Deliveroo has penned with the likes of Waitrose, Aldi and the Co-op, are here to stay.
“Growth will also be driven by leading players looking to improve delivery speed, including partnerships with last-mile delivery specialists such as Deliveroo and Uber Eats,” he said.
Amazon, which owns a stake in Deliveroo, has reaped the rewards of the shift to online shopping during the Covid crisis but the launch of its Amazon Fresh food stores in London has also enhanced its position in the edible grocery category. Amazon is currently ranked 19th out of all UK retailers in that particular market, following sales growth of 17.6% in 2020.
By 2025, Amazon is expected to become the 15th largest player in the edible grocery category but it will remain some distance behind the big four, the discounters, Marks & Spencer, the Co-op and Waitrose owner, the John Lewis Partnership.
Edge chief executive Deren Baker said Amazon’s move to physical spaces will help turbocharge its future UK growth. He said: “Over the past year, Amazon has grown its online retail footprint in the UK and expanded into the high street, with the launch of three Amazon Fresh shops in London and a high-tech hair salon, where it can trial technology and product innovation and increase brand presence in the fast-growing beauty sector.”
Overall, the UK retail market is expected to grow by £123.6bn to surpass £500bn by 2025. Online shopping will account for a third of all sales, up from 26% last year, Edge Retail Insight said.
The only physical channel expected to experience a growth in market share during the same time period will be discount. Its share of the UK retail market is forecast to increase from 7.9% to 8.2%.
By contrast, the proportion of retail sales made in UK hypermarkets will drop from 19.8% to 16.3%, supermarkets’ share will fall from 10.4% to 8.9% and convenience will slip from 7% to 6.3%.
Baker said: “Physical stores will remain an important channel but consumer packaged goods (CPG) brands must prioritise their online strategies to capture growth opportunities, particularly in mature digital markets, like the UK.
“That means understanding how to convert shoppers online through digital touchpoints, such as marketplaces like Amazon, where many now begin their purchase journeys. The next five years will be defined by the ability of CPG firms to leverage the might and skill of marketplaces to acquire customers.
“This is next-generation retail – retail 5.0 – marketplaces mastering personalisation at scale. CPG brands must focus investment on winning market share through the online platforms most relevant to them.”
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