Amazon is reported to be targeting a market share three times that of Ocado’s, but Stuart Higgins, partner at supply chain strategist LCP Consulting, believes the online giant will face difficulties if it tries to duplicate the US Fresh offering in the UK.
He said: “In the US, there is an upfront fee of $300; this definitely would be challenging for the UK market where the average grocery delivery cost is around £3 with ‘free’ delivery passes costing £30–£60.”
He also warned that Amazon could face problems in getting its range right because it used a Stocked & Marketplace model – where local shops and restaurants provide specialist foods while Amazon stocks the ‘essentials’.
‘Help deliver a balanced proposition’
'Flaws' in Amazon Fresh
- Upfront fee ($300 in US)
- Ranges skewed by suppliers
- Viability limited to large cities
- Can’t use existing storage and logistics
Source: Stuart Higgins, partner, LCP Consulting
Amazon Fresh has around 20,000 products, which compares with about 60,000 products for Ocado. “However, the picture isn’t quite as simple as this because the Marketplace element of the offer seems geared towards those that want to trade with Amazon rather than those that will help to deliver a balanced proposition which leads to some anomalies,” said Higgins.
For example, in southern California, tea, coffee and beverages represented about 33% of the Amazon Fresh Range, with around 7,000 stock keeping units (SKUs), whereas in Ocado, tea, coffee and beverages only accounted for about 4% of the range at 2,300 SKUs.
Higgins added: “So beneath all of the hype, are Amazon Fresh actually providing a balanced range that the UK consumer would buy into for a full grocery shop?”
He warned the Stocked & Marketplace model may also restrict viability. “This could work well in metropolitan areas if they partner a good, reputable supplier providing a premium services, similar to Abel and Cole,” he said.
“There is a market for this service in the UK, but the critical mass to make it a viable business will only be in the large cities.”
Requiring significant investment
Unlike Amazon’s current ranges, fresh food also required specific storage and handling, requiring significant investment in delivery services and suppliers that cater for this.
Higgins added: “It will be interesting to see how their other product ranges and delivery options connect with their food ranges – or whether they keep them entirely discrete, as they currently do in the US.”
If Amazon can overcome these hurdles, its critical differentiator and the mass market appeal will be same-day food deliveries, which the main players in the UK grocery market, currently, do not provide.
Higgins said: “This is potentially a move with greater risk than anything Amazon has tried recently, however they have proved to the retail industry time and again that they are ahead of the curve and a significant amount of research will have gone in to this decision.”