The online retailer will need to find a way to build its quality credentials across typically unbranded food products in the same way Ocado did when it teamed up with Waitrose, according to Rambaut Fairley, partner at OC&C Strategy Consultants.
He said: “Amazon will be confident of its ability to build a distribution network and delivery experience that meets the needs of the online shopper, as it has done so successfully elsewhere.
“However, the strengths required to win in online grocery differ from other categories.”
Fairley claimed that for Fresh to win, quality perception was key and this was particularly important online, where the retailer selected the product on behalf of the customer.
Amazon has made its name as a retailer of other people’s products, but now it would need to find a way to build its quality credentials across typically unbranded food products, he said.
Market quality leader
Ocado did this by teaming up with Waitrose, the market’s quality leader in the eyes of the consumer, Fairley added.
According to Fairley, warehousing and delivering fresh food required a totally different, and more expensive, setup to Amazon’s current infrastructure.
“Its logistical empire in non-food retail won’t give it much benefit in food or an advantage over the likes of Ocado, for example, which has had a big head start in grocery and worked hard to build scale in distribution.”
He claimed the move risked taking the business quite far away from its core strengths.
“Amazon’s areas of advantage are that it’s fast, convenient and great value for money – large or small, orders are made at the click of a button and invariably turn up on time, or earlier.
“But the dynamics are quite different in online grocery retail – where small basket sizes and too rapid delivery expectations would add up to negative returns for any retailer.”
Supply deal with Morrisons
Fairley suggested it had come as a surprise to many that Amazon, which agreed a grocery supply deal with Morrisons in February, was entering the UK market organically.
He believed the natural solution appeared to be for the firm to buy Ocado, with which it had an existing supply deal, although it might have balked at the hefty price tag.
He said: “Ocado has already established the quality credentials in the UK, its automated pick-and-pack warehousing would seem a natural fit with Amazon’s ethos, and in a UK grocery market that some feel is already over-supplied with participants, a new entrant may only increase the pressure.
“Which of its competitors feels most threatened will depend on how Amazon chooses to position its offer – will it enter on price leadership or a superior service proposition?
“In a market that has already been heavily disrupted by the discounters and makes little or no money online as it is, a price leadership position backed by extensive range could be a big threat to the Big Four.
However, Fairley cautioned: “A service-led position on the other hand, with tight, low cost delivery timeslots and guarantees on availability, would seem like a direct challenge to Ocado. As a result, we can expect an initial period of ‘wait and see’ from the market as this position becomes clear.”
Despite ongoing speculation about the launch of Fresh in the UK, Amazon told FoodManufacture.co.uk that it remained a US business and there were no announcements planned for its UK arrival.
A number of fresh grocery items are currently available through Amazon Prime Now, an ultra-fast delivery service available through an app.
Prime Now is available in London, Manchester, Newcastle, Liverpool, Leeds, Portsmouth and South Yorkshire.