The UK grocery market is one of the most competitive in the world. It is dominated by the ‘Big Four’ supermarkets, alongside the likes of Aldi, Lidl, Co-op, Waitrose and Ocado. But now they all need to start really paying attention to Amazon.
The global retail giant has been building out its food offer in the UK since launching its ‘Fresh’ offer online in 2016. Having also now opened a number of physical convenience outlets, it declared its true ambitions Monday by price matching Tesco’s Clubcard prices.
I’ve studied Amazon strategy closely for a number of years now and believe this move is significant for a number of reasons: the main one being its intent to grow UK grocery market share at a key time in its growth trajectory, where its traditional sources of profit are waning.
Gaining a foothold in food
Amazon needs food to grow. It is the biggest non-food online retailer in many of the countries it operates in. But, it has historically struggled when it comes to selling groceries. Indeed, it is arguably difficult to see how its Whole Foods acquisition has added value.
But it needs food because it is the biggest consumer category for spend, accounting for 40% of global retail sales.
So, Amazon can only lay claim to being a dominant competitor in the remaining 60%. It needs to increase its grocery penetration to sustain growth.
Its desire to disrupt the industries and retail categories it enters is also well known. But it has found it difficult to crack UK food in particular because of its well-established brands that already operate in an ultra-competitive market with razor thin margins.
Right time, right place
As the UK grocery food market is one of the most competitive, it’s easy to understand why Tesco recently introduced exclusive discounts for members of its Clubcard loyalty scheme. The initiative complements its own price matching efforts against the likes of Aldi.
But this has left Tesco exposed to Amazon’s own price matching move.
While Amazon monitors and matches millions of prices a day, the fact it has never explicitly done so against another retailer until now shows just how much it is willing to give away in order to win.
At a time when the cost-of-living crisis really begins to bite, Amazon is betting it can ride the coattails of Tesco’s initiative.
The disruptive difference being that its Fresh offer beats the competition by including free 1-hour delivery to Prime members where available.
So, as Amazon inevitably continues to expand its coverage and harden its competitive stance, its incumbent rivals ignore the threat it represents to their market share at their peril
Miya Knights is the co-author of Amazon and Omnichannel Retail and publisher of RetailTechnology.co.uk
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