Opinion: Why Morrisons link-up with Amazon will reshape UK grocery

I’m not one that’s usually given to dramatic pronouncements, but I firmly believe that – in the fullness of time – February 29, 2016 will be seen one of those game-changing, pivotal days that reshaped the UK grocery market.

We’ve all known that Amazon has been harbouring some serious intentions regarding grocery and that it was just a question of ‘when’ and ‘how’ rather than ‘if’ it would start turning them into reality.

It’s long been selling grocery items, of course, and has had a little play around with Pantry and Prime Now, but today’s news of a tie-up with Morrisons could see it become an ominous and scalable entrant into the market.

Breaking down barriers

At a stroke, the link with Morrisons removes two large obstacles: the lack of credibility in fresh and the lack of private label, which accounts for around half of the typical basket in the UK. This deal also raises the question of whether Amazon might look to establish a similar partnership in the US.

From a competitive standpoint, Amazon can be rather scary. It has a strong track record in driving prices down and wreaking turbulence in a variety of categories.

It has equally robust credentials in establishing shopper ecosystems like Prime that successfully create incremental spending and loyalty, generating disincentives to shop elsewhere. It has jaw-dropping capabilities in fulfilment. And it has a slightly flamboyant short-term philosophy regarding a metric that is fundamental to others in the sector: profitability.

For Morrisons, the deal can be seen as a broadly positive one – as has been evidenced by the stock market reaction.

“The deal might drive improved brand awareness by getting Morrisons’ undoubtedly excellent products into the hands and kitchens of shoppers.” 

Bryan Roberts, TCC Global

The risk of cannibalisation with its own online business or store sales is relatively modest and the arrangement will load further volumes and efficiencies into its upstream procurement, processing and manufacturing operations.

Furthermore, the deal might drive improved brand awareness by getting the retailer’s undoubtedly excellent products into the hands and kitchens of shoppers.

There has been a degree of speculation over the last few months about Ocado looking to link up with Amazon. While today’s news does not necessarily preclude that, one imagines there might be a reasonable amount of furrowed brows in Ocado HQ today.

Ocado’s major customer has partly enabled an onslaught of what will become one of Ocado’s major competitors. This sort of disharmony, I think, was almost inevitable given Ocado’s split personality as both retailer and technology provider.

Indeed, it is not the first outbreak of tension, with noses thought to be out of joint when Ocado added Morrisons alongside Waitrose as a trading partner. One of the outcomes will be even more urgency for Ocado to reveal its first international technology deal.

Wider implications

For the rest of the market, the implications seem clear – chiefly, even more competition.

Secondly, an encouragement to redouble efforts in terms of nimble, expeditious and affordable fulfilment capabilities.

Thirdly, and perhaps most importantly, a strengthening of the imperative to transform supermarkets into everything that Amazon cannot be: sumptuous temples of food and drink full of sights, sounds, smells and tastes that celebrate the inherent joy of food and drink.

I must confess that, while I like the idea of an Amazon drone gently lowering a still-warm Morrisons sausage roll into my greedy face, I like the idea of visiting experiential, service-driven supermarkets even more.

• Bryan Roberts is global insight director at TCC