UK supermarkets see off Amazon threat for now

17 January 2019 Consultancy.uk

As ecommerce continues to batter the market share of traditional bricks-and-mortar retailers, one area that continues to hold fast against the challenge is the grocery subsector. According to a new survey, while they have gained ground, the likes of Amazon are still less sought out by shoppers than established names such as ASDA when it comes to their weekly shopping round.

Supermarkets saw a net opening of eight new stores in 2018. That might not sound like a particularly impressive figure, until placed in the context of a UK retail sector which saw a net closure of 1,123 stores – the equivalent of 14 per day – with only bookshops and ice cream parlours enjoying the same level of expansion. Then, it becomes clear that the grocery sector is one of just a few subsectors which has not been a significant victim of a major downturn on high-streets across Britain. 

While a potent blend of spiralling debts, climbing business rates, and crippling costs related to a weakened pound triggered by Brexit have seen multiple casualties in the British leisure and retail scene throughout the last year, this has largely been in order to facilitate spending on the bare necessities. While consumers are able to scale back on dining out, for example, to tighten their belts, food at home remains essential, meaning that supermarkets have been able to continue growing, with discount brands such as Lidl and Aldi thriving in particular.

Grocery operators are also fortunately positioned as the part of weekly shopping which remains strongly in the domain of bricks-and-mortar stores, which have already positioned themselves well to take on ecommerce. Tesco, for example, has been delivering produce according to orders via their website for years. While this leaves less room for disruptors to arrive and differentiate from their predecessors via such a service, however, that does not mean that the likes of Amazon have no route into the grocery arena.

Most customers in the grocery market are reluctant to shop with Amazon

Indeed, Amazon has already made significant inroads into the market in the United States. There, the company purchased high-end grocer Whole Foods, where the ecommerce giant immediately set about a restructuring programme that saw prices slashed by as much as 43%. In the UK, Amazon is yet to make such a move; however, a partnership with Morrisons – one of the industry’s ‘Big Four’ – to deliver groceries via Amazon Prime has led some to speculate that a deal may well be in the pipeline. 

Trust and expertise

It is undeniable that ecommerce has made strides forward in the grocery sphere, but such a development seems essential if it is to make the next leap and genuinely challenge the market. According to a poll of UK shoppers by behavioural science research firm Decision Technology, customers would still largely opt for existing big names over Amazon if it officially entered the grocery market in its own right. While the low prices Amazon could offer are well known by British consumers from other retail experiences, only 13% of customers in the grocery market would choose Amazon, placing it squarely behind ASDA, at 17%, Tesco at 16%, and Morrisons at 16%.

This further demonstrates the pros of a possible move for Morrisons. While Amazon is known for being cheaper than bricks-and-mortar stores in other retail subsectors, it cannot leverage its brand reputation for having good prices elsewhere into being a potential grocery market-leader because of its weaknesses on trust and expertise – factors Decision Technology asserts are essential to win market share in the grocery field. With that being said, Amazon and fellow ecommerce grocer Hello Fresh do both surpass Sainsbury’s in terms of consumer interest, with the final ‘Big Four’ member only registering 10%, showing the pull of pricing alone.

To that end, Decision Technology found that competitors would be well advised to stay wary of Amazon in the grocery market. If Amazon pursued a similar strategy to the one it took with Whole Foods and acquired Morrisons, it could pose a major threat. At the same time, the potential for ecommerce companies to leverage in-store innovations could also prove a major draw for digitally savvy customers, which traditional stores may struggle to keep pace with, without alienating older generations of shoppers.

Commenting on the findings, Henry Stott, Director of Decision Technology, said, “If Amazon were to turbocharge its entrance into the grocery market, we could see significant disruption. An increasingly digitised shopping experience in the future could play into Amazon’s hands and give it an acute advantage in grabbing market share. Yet Amazon won’t kill off competition in every sector. The ecommerce giant fares less well in offline markets, where customers often attach an emotional element to their experiences. We found that Amazon’s brand has its limits.”


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