Supermarkets under significant threat from Amazon Fresh

Nick Miller
posted by Nick Miller
4 November 2015

Amazon has always been considered a thoroughly disruptive company, and its move into grocery deliveries with Amazon Fresh is no different.

From its take on the publishing industry to the revolution it brought to online retailing, the company has left whole industries in the dust if they refuse to meet its challenge. Supermarkets and other companies need to drastically reconsider their delivery strategies in the wake of Amazon Fresh’s same-day delivery service.

For those unaware, Amazon has started to offer some chilled and store cupboard products to select customers in Birmingham and London. Amazon Fresh offers same-day delivery services, and is set to expand across the UK if successful. The firm's strategy with Amazon Fresh is not particularly clear, given it has no historic links to grocery produce. But looking at the US could shine a light on the company’s plan.

In the US, Amazon’s ‘Flex’ service is employing drivers in Seattle to make same-hour deliveries for Amazon Prime Now customers. If this service is incorporated into Amazon Fresh in the UK, the retail giant will have significant advantages over current supermarket delivery services. In a market that has been lacking innovation for some time Amazon Fresh poses a significant threat to existing grocery companies through offering a vastly superior delivery service.

As such, supermarket retailers are under heavy pressure to transform their delivery strategies. One way in which they could meet these demands is through new delivery partnerships. Taxi firm agreements, or even collaboration between competitors on the deliver leg, could present major opportunities to reduce delivery times, potentially at a lower cost than Amazon’s ‘Flex’ service. As well as improving delivery times, new partnerships can enable supermarkets to improve customer convenience by how they receive their groceries.

Supermarkets are also capable of innovating their ‘click and collect’ services. Customer drop off points could be established at key areas, such as schools allowing parents to collect during the school run, while deliveries to gyms or train stations could also remove friction from a customer’s journey home after work. Grocery companies have an opportunity to make their customers’ lives easier, directly competing with Amazon Fresh’s smooth service.

No matter how supermarkets do compete with Amazon on grocery deliveries, British consumers are bound to benefit. Supermarkets have traditionally had low market capitalisation due to low growth prospects and a highly competitive environment, whereas Amazon has deep pockets to drive new business ventures. Grocery delivery companies who turn towards this innovation-led business model are best placed to face Amazon Fresh’s challenge head on.

Nick Miller is head of FMCG at Crimson & Co

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