Amazon has developed detailed plans to storm the UK supermarket sector as the e-commerce is planning to open hundreds of cashierless grocery stores across the country in the next three years.
More than 260 Amazon-owned and run supermarkets are to be launched before the end of 2024, namely 60 in 2022, another 100 per year in 2023 and 100 more the year after.
All Amazon supermarkets will be cashierless, the online retail giant wrote in internal documents, according to a Business Insider report.
Amazon reportedly wants to “catch up to” Tesco and Sainsbury’s, with a growth rate similar to both supermarkets, as well as Co-op.
The internal Amazon documents read: “In 2022, we assume a broader rollout of 2 store launches per week by the end of [the] year, targeting 60 total openings.”
“In 2023 and 2024, we are planning 100 store launches per year, in line with more aggressive opening programmes achieved by convenience stores in the UK in the last five years, Tesco’s, Sainsbury’s and Co-op have all exceeded 100 openings per year.”
According to the report, Amazon is also looking to open a number of supermarkets in Germany, Spain and Italy next year.
However, so far the project has faced some serious challenges, the company seemed to have acknowledged internally.
The team has reportedly struggled to meet its goals, leading to frustration internally. Only six of the 26 stores that are scheduled to open before the end of this year are currently in operation.
When approach by City A.M., an Amazon spokeswoman said “we do not comment on rumours or speculation.”
Tesco veteran Tony Hoggett
It is no secret Amazon has ambitions to enter the UK grocery store market, as well as other markets around the world.
In July, the company poached Tony Hoggett, formerly one of Tesco’s top executives, to run its physical stores.
Starting in January 2022, Hoggett will take on the role of senior vice president of physical stores and report to Dave Clark, chief executive of Amazon’s worldwide consumer business. He will be based in Seattle.
Hoggett joined Tesco in 1990 and has served in a number of top roles in the UK and Asia. He became group chief operating officer in 2018 before being appointed to the newly-created role of chief strategy and innovation officer in April this year.
‘Aggressive and calculated’
Discussing the reports with Ross Hindle, retail sector analyst at Third Bridge, called Amazon’s decision “a typically aggressive and calculated move.”
It also raises further questions around the future of the Group’s partnership with Morrisons, Hindle pointed out.
“Amazon has bricks and mortar in its sights in order to ramp up its presence within the UK grocery market. Despite already having an online grocery presence, the pace of sales growth hasn’t been as fast-paced as some might have expected.
“Growing a brick-and-mortar retail presence is Amazon’s way of bringing more people into their online ecosystem and ultimately driving overall sales.”Ross Hindle, retail sector analyst at Third Bridge
“The data shows that when Amazon gains a customer through their grocery channel or an existing customer opts for grocery, those customers bring in, by far, the highest life-time-value for the business,” Hindle concluded.
Amazon has all the reason to be optimistic about its prospects in the UK supermarket space.
Research that was shared exclusively with City A.M. in June showed that Amazon is to overtake Tesco as the UK’s largest retailer within the next four years, with sales expected to hit more than £77bn by 2025.
Last year, Amazon UK’s total sales were £36.3bn while Tesco’s sales were almost double at £64bn.
However, by 2025, Edge by Ascential’s syndicated research arm, Edge Retail Insight, predicts that Tesco sales will rise to £76.1bn in total sales, representing annual sales growth of 3.5 per cent but not enough to stay ahead of Amazon’s overall UK sales expansion.
The predictions suggests that Sainsbury’s will hold on to its position as the UK’s third largest retailer, with sales growing by 4.5 per cent to reach £42.2bn by 2025.
Meanwhile, sales growth at Asda, which has recently been purchased from Walmart by the British owners of the EG Group, are expected to grow by 2.4 per cent to £26.7bn by 2025 to come in at fourth place by 2025.
The firm analysed the performance of chain retailers and channels performance in the UK as of March and explores unique market characteristics to determine where suppliers should focus their investment to win in the market.
In the edible grocery category, Amazon still represents a relatively small player in the UK, despite growth of 17.6 per cent in 2020 at the height of the pandemic when health concerns saw more people buying essentials online, many for the first time.
Argos and discounters
The data forecasts Sainsbury’s Argos to be the fastest-growing leading player over the next five years, expanding at a 2020-2025 rate of 17.3 per cent.
Moreover, a third of all UK chain retail sales is expected to occur online by 2025, up from 26 per cent in 2020, outperforming all physical channels by a stretch. E-commerce sales will grow from £105.2bn in 2020 to £176.2bn by 2025.
The only other channel to grow market share over the next few years will be the discounters, which will account for 8.2 per cent of UK chain retail share by 2020, up from 7.9 per cent.
All other channels, including supermarkets, will lose market share by 2025. Food service will remain static.
The firm also highlight the rapid growth of ecommerce in UK grocery retail, with online penetration rising from 8.2 per cent to 10.9 per cent by 2025.
Leading retailers are adapting to the shift in consumer spending patterns at pace, innovating in last-mile delivery with delivery intermediary partnerships and investing in automation in warehouses.
“The UK is one of the largest retail markets in Europe, and a key market for many brands around the world. E-commerce is expected to grow in the UK over the next few years, and this will be driven by digital marketplace giants like Amazon, and omnichannel marketplace giants like Tesco,” Deren Baker, CEO at Edge by Ascential, told City A.M. in June.
“Over the past year, Amazon has grown its online retail footprint in the UK and expanded into the high street, with the launch of three Amazon Fresh shops in London and a high-tech hair salon, where it can trial technology and product innovation and increase brand presence in the fast-growing beauty sector,” he added.
Deliveroo and Uber Eats
Growth will also be driven by leading players looking to improve delivery speed, including partnerships with last-mile delivery specialists such as Deliveroo and Uber Eats.
Baker stressed that physical stores will remain an important channel but consumer packaged goods (CPG) brands must prioritise their online strategies to capture growth opportunities, particularly in mature digital markets, like the UK.
“That means understanding how to convert shoppers online through digital touchpoints, such as marketplaces like Amazon, where many now begin their purchase journeys. The next five years will be defined by the ability of CPG firms to leverage the might and skill of marketplaces to acquire customers.”
“This is next-generation retail – Retail 5.0 – marketplaces mastering personalisation at scale. CPG brands must focus investment on winning market share through the online platforms most relevant to them,” he concluded.
The latest news about Amazon’s expansion plans in the UK follows reports, last week, that the company has started running a number of bus lines across London, providing services for employees and contractors.
The e-commerce giant has four routes – which are run by contracted operators – to connect London to the outskirts where most of its warehouses are located, according to a MyLondon report.
Unlike TfL buses that are red, have the logo and accept Oyster card payment, Amazon buses can be of any shape and colour and do not accept the TfL pass.
At the price of £4 for a return ticket, Amazon bus routes run every few minutes between 5am and 7am, resuming service 12 hours later – allowing employees enough time to start and finish their shifts.
The lines that are run by the e-commerce giant are AZ1/AZ2:, from Woolwich/Thamesmead via Erith to Amazon’s Dartford Fulfilment Centre. This route is reportedly for pre-booked ticket holders only and is entirely unadvertised.
Then there is LCY2, from West Ham via Barking and Rainham to Amazon’s Tilbury Fulfilment Centre.
Finally, the LTN2 line is also run by Amazon, starting/ending in Wembley Park to Amazon’s Hemel Hempstead Fulfilment Centre.