Yesterday, MNB took note of press reports that Amazon was getting into the grocery business in both the UK and Germany. Shortly thereafter, we received a press release from the Verdict Research firm that quoted one of its analysts, Joe Robinson, as saying that Amazon was “biting off more than it can chew,” adding:
“Amazon’s foray into the UK food & grocery has been long mooted and thus is unlikely to be an unexpected surprise among the sector’s major players. In addition to short term issues such as lack of website functionality and inflexibility in its delivery options, it faces a monumental challenge to build brand trust and, more importantly, loyalty in a market where such attributes are imperative.
“Nonetheless, its announcement comes at a far from ideal time for pure-play rival Ocado, which is on the verge of a IPO, hoping to raise approximately £200m to fund the next stage of its expansion. Indeed, while Ocado currently has a significant competitive advantage over Amazon, owing largely to its innovative and efficient fulfillment operations, customer loyalty and quality credentials, Amazon, with its huge resources, is likely to seek to erode this competitive gap in the long term.
“The long term potential of Amazon’s food & grocery offer is likely to be in developing a reputation for bulk and niche purchases and offering a platform for smaller food & grocery suppliers rather than cultivating a significant share of the UK food & grocery market.”
“Amazon’s foray into the UK food & grocery has been long mooted and thus is unlikely to be an unexpected surprise among the sector’s major players. In addition to short term issues such as lack of website functionality and inflexibility in its delivery options, it faces a monumental challenge to build brand trust and, more importantly, loyalty in a market where such attributes are imperative.
“Nonetheless, its announcement comes at a far from ideal time for pure-play rival Ocado, which is on the verge of a IPO, hoping to raise approximately £200m to fund the next stage of its expansion. Indeed, while Ocado currently has a significant competitive advantage over Amazon, owing largely to its innovative and efficient fulfillment operations, customer loyalty and quality credentials, Amazon, with its huge resources, is likely to seek to erode this competitive gap in the long term.
“The long term potential of Amazon’s food & grocery offer is likely to be in developing a reputation for bulk and niche purchases and offering a platform for smaller food & grocery suppliers rather than cultivating a significant share of the UK food & grocery market.”
- KC's View:
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All of which may be true.
Except that I would make two rejoinders.
One is that Amazon generally seems to be very good at growing the pie. It probably is not looking to marginalize Tesco’s and Ocado’s e-grocery businesses as much as it is attempting to introduce a different kind of service and grow the pie...not to mention capitalize on an existing customer list that may give it some advantages.
The other is simply that the online battlefield is littered with the bodies of people and companies that have underestimated Amazon.com. I’ve been writing about the company for a long time - and as I’ve mentioned here before, I’ve also been a customer since March 1997 - and I cannot tell you how many people over the years have predicted Amazon’s demise.
This isn’t to say that everything works. But Amazon has demonstrated a consumer hunger for online shopping that a lot of other smart retailers - in a wide variety of venues - have worked to satisfy.
