Amazon’s latest tie-ups with Deliveroo and the Co-op show it is slowly tightening its grip on the UK grocery market by leveraging its sprawling network of Prime members.
Amazon does not tend to say much in the public domain about its plans for the British grocery market. When asked, the US giant says that it’s committed to the UK more widely, and to its grocery market, given its already huge online presence.
But Amazon speaks rarely and offers little illuminating when it does. So, while we don’t really know what Amazon’s food market strategy is, it’s not unreasonable to assume that it sees grocery as one of its key drivers of change and growth over the rest of this decade.
Even so, Amazon works to Amazon time. It is not phased by the outside retailing world and is already juggling multiple work streams with annual revenue streams set to exceed $500bn in 2022 (£361bn), with a corresponding market cap of $1.75trn (£1.27bn).
In other words, the UK grocery market is but a spot on the Amazon giant at this time. Even so, the giant is beginning to stir.
Amazon makes two interesting moves
Following on from Amazon offering free delivery to Prime members who shop at Morrisons.com, the UK business has made two interesting announcements this week.
Firstly it has announced that Prime customers can now access free Deliveroo deliveries on food orders through the app. The other is that the UK’s sixth largest grocer the Co-op has begun offering a full food shop on Amazon.co.uk with same-day and two-hour delivery slots.
These moves by Amazon nudge the proposition forward with what seems to be an evolving strategy centred upon Prime customers.
We see this firstly in its strategic partnership with Morrisons, where the No. 4 grocer in the UK evolved from being a mere supplier into being Amazon Prime’s grocer of choice online and the wholesale partner for its Fresh stores in bricks-and-mortar.
This partnership is gaining traction. Morrisons’ first-half results showed that Prime orders accounted for over 10% of store sales in participating outlets.
Amazon’s c-store Fresh outlets meanwhile continue to slowly spring up like mushrooms after a spell of rain around London. These too are centred upon customers having Amazon accounts linked to their debit cards.
In introducing Amazon Prime members to the Co-op’s 2,500-strong c-store network for groceries, Amazon is penetrating a different part of the market in a way that is complementary to its existing offer, light on capital expenditure and savvily priced - delivery charges are free on orders over £40, while orders under £40 incur a flat £3.99 fee.
Giant taking its time to assess UK market
All the while Amazon is gaining more and more intelligence on the UK grocery market as well as on shopper behaviour in the round and on individual households too. It will no doubt prove to be a very good move for the Co-op too.
Quite where this all ends remains to be seen. Amazon is proving to be patient and canny in its approach to UK grocery. At no point has it shown any interest in jumping into the deep end with a big cheque; by wading into the current private equity battle over Morrisons or splurging on Ocado, for example.
Instead, we sense Amazon likes the idea of local fulfilment, which is where supermarkets have come into their own through the pandemic.
In the meantime, British grocery will do well to watch, learn and appropriately react as the elephant begins to increasingly throw its weight around.
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