Online grocery sales are increasing at a healthy rate of 14 per cent each year – compared to a near zero per cent growth rate elsewhere in grocery – and yet only a quarter of households buy any groceries online annually offering plenty of room for growth.
That’s 20 million shoppers-worth of untapped potential for Amazon to play with. But it won’t all be plain sailing – the Amazon Fresh model may be working well in the US, but the UK grocery market poses a very different challenge.
Retailers know that the most important step in growing your online business is to get each customer to venture online for the first time.
Customers are more likely to buy from retailers whose physical stores they are already familiar with and once they’ve placed their first order they tend to remain loyal. Favourites lists, loyalty schemes and the desire of most people to buy from a range they know and trust can create an inertia to switching.
By imposing a threshold spend for delivery conventional online shopping fails to cater for the fact that 60 per cent of grocery sales are purchased in ‘top up shops’, which contain only seven items on average. One of the ways Amazon could truly have differentiated its offer would have been to remove this barrier to smaller shops.
But despite the one-hour delivery time seeming to cater for the ‘dinner for tonight’ market, a £20 minimum spend prevails. Amazon could therefore find itself competing not only against other grocers, but also with takeaways who offer a similar promise of convenience.
Own label goods do not feature heavily in the US, but in the UK they make up half of all grocery purchases. This is something Amazon will need to consider in the UK market. Will they develop their own range, or will partnership with an alternative provider – such as Whole Foods in the US – provide the answer?
With all this in mind, though, it is worth remembering that Amazon should never be underestimated. Always a company that looks before it leaps, it has made a success of starting small before incrementally expanding its offer.
Watch this space.