COMMENT: Amazon faces an uphill battle with online groceries in Germany
Amazon faces an uphill battle with its online grocery offer in Germany
In a surprise move, Amazon has launched an online shop in Germany offering food and beverages. Germany's focus on low food prices and the dominance of discounters like Lidl and Aldi has meant that, despite the major retailers' best attempts, home delivery has not been a profitable business model in the country.
This is not Amazon's first attempt at selling groceries, it has operations across the US, but its focus has mostly been on household items and ambient groceries, delivered in bulk. It also offers a limited service called Amazon Fresh in Seattle, with pre-dawn delivery for groceries before 6am; and doorstep delivery, where it delivers groceries in temperature controlled bags to the customer's doorstep in three-hour windows throughout the day.
The German system will ship products, including fish, meat and dairy, overnight using its Prime and Overnight Shipping services. However analysts have called into question the viability of such services.
Frankfurt-based Planet Retail analyst Björn Weber told just-food: "Sending meat, fish or dairy produce in parcels is highly irresponsible. They pack it with one-way cooling packs in one-way styrofoam boxes and contract an expensive overnight parcel service."
"If the consumer is not at home, although a delivery time was agreed on, the meat has to be destroyed and if they drop the parcel with a neighbour the whole thing becomes a serious health problem. In summer the inside of an ordinary parcel delivery van reaches 50-60 degrees Celsius. Tests have shown that cooling packs can't compensate for even three hot hours in the morning," he added.
Added to this is the tricky fact that in general, online grocery retailers have struggled to make a profit. Even the much lauded UK online grocer Ocado is unlikely to make a profit until 2014, more than a decade after its launch, one of the company's advisors said today.
At the core of it, online grocery retail is not the same as non-food retail. In grocery retail, companies need to ship dozens of low margin perishables, where with non-food, they generally only have to move a couple of more robust, high margin items.
The real cost of having goods picked and delivered is closer to EUR10 (US$12.60) than the GBP3 (US$4.55) that UK chains like Ocado charge. Retailers will continue struggling in this sphere until they figure out a way to turn this around to their advantage.
This is going to be a particularly large hurdle for Amazon, with its high value perception as it enters the highly-saturated, very competitive, price-orientated German market.
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