Today Amazon.co.uk launched its online grocery store, taking on UK retailers like Tesco, Ocado and Sainsbury’s.
Industry pundits have suggested that the move comes at an inopportune time for Ocado, which released its IPO prospectus yesterday.
However, Amazon’s perishables offering is so disjointed, it’s hard to see right now how it will stack up as a credible competitor against the large supermarket chains.
Fresh products like a whole lamb, which is selling for GBP119.95, through to individual vegetables like cucumbers and aubergines are being sold through third-party merchants and there is little information on the site to discern the quality or, in some cases, even the volume of products on sale.
The price being charged for fresh produce is rather eye-opening. Today an orange pepper costs GBP0.69 but then the service adds a further GBP7.50 shipping fee, described by RBS analyst Justin Scarborough as “mad”.
Added to this, it is unclear that the delivery fee remains static as you order more products from the same merchant. So, after putting a GBP0.69 orange pepper in my basket, as well as a GBP1.20 cucumber, both sold through third-party merchant Banana King, it was not until I hit the checkout that it became clear I was only going to be charged one GBP7.50 delivery instead of two, or GBP15.
And this is even using an Amazon Prime account, which for the most part provides free next day delivery.
However, if I ordered the whole lamb mentioned earlier, I would have to pay an extra GBP9.95 for its separate delivery.
Beyond this, shipping time is three to five days, so customers really only get the most basic idea of when their products will arrive.
Compare this with Ocado. Looking on the site in the middle of the afternoon today, I can get all of my groceries delivered in one shot. The earliest one-hour delivery slot is 10am tomorrow and delivery will only cost me GBP4.99.
Additionally on Ocado’s site, I can look through its recipe section, pick out something that looks tasty and have all of the ingredients in my basket with just one click.
Where Amazon may have the potential for some success is through its ambient offerings, particularly in niche areas. It directly offers dry groceries and household goods in bulk, in a similar way as Costco. It has been doing this in the US for some time, so no great innovation here. Delivery in these cases is managed through its central fulfilment centres and customers get the same delivery options as they would for its non-food offer.
However, if bulk savings are Amazon’s USP in this sector, it fails on that front as well. Chosen at random, I compared Amazon’s Uncle Ben’s Basmati Wok Rice (six packs for GBP9.30), versus GBP1.69 for a single packet at Ocado, although it was on offer for five packs for GBP7.
Breaking it down, Ocado’s GBP1.4 offer beats out Amazon’s GBP1.75 per packet. Amazon will have to ensure that its price perception is significantly lower, like that of a warehouse club than a normal grocery chain, otherwise it will struggle to convince customers that there’s value in bulk buying.
Scarborough said he expects Amazon “to work on the concept and enhance its capabilities and options”. He added: “While we not suggest that it is in anyway a competitive threat today, Amazon is clearly here to stay and could be a threat in the future.”
All this new entry will do is highlight how nascent the sector really is, and how much potential there is for the landscape to change in coming years. All of this only makes the job for those valuing Ocado even more challenging.