The waiting is over, well at least for the burghers of Hackney & Knightsbridge. Such households can now shop from the Amazon Fresh menu, which, after much suspense, has finally gone live in the capital. Does the US online giant’s arrival represent a new chapter for British grocery retail or shall we look back to its arrival with a shrug of the shoulders?
The sensible answer to this question is to take the middle course. So, the early days of Fresh will not even flicker on the radar of market activity in the £160bn-plus UK food retailing market. More to the point, it will take some time before it does. Online grocery, which is approaching 20 years in the trading, is less than 6% of the UK market. Ocado has also been trading for over 15 years, and if we strip out its products from Morrisons and Waitrose, it also barely registers on the grocery seismometer.
Accordingly, it will be some time before we see the substance of Fresh. However, Amazon has time on its hands. It is very patient - learning iteratively - and it has an enormous balance sheet to commit to any chosen market. Equally, Amazon is not really light when it comes to technological capability. Therefore, if we broaden our time horizons to, say, 10 to 15 years out then Amazon and Aldi could well be among the last men standing in UK food retailing.
The British online grocery scene is advanced and not easy, something Amazon highlights. Competitors will also learn on the way. In the near-term the incumbent superstore groups can therefore keep focused and take Amazon in their stride but they may be wise not to ignore its development. For Morrisons it is a win-win as it gains access to new customers and a stronger presence in the online channel through its supply agreement, which shows great insight by David Potts. However, unless Amazon acquires Ocado, Fresh, together with premium players like Lidgate’s in tow, is a growing challenge to Ocado’s business, hence the understandable stock market reaction. And the longer Amazon progresses under its own steam, the less likely that Ocado acquisition becomes. We shall wait with interest to see when Amazon time reaches us on Merseyside…
Clive Black is head of research at Shore Capital Stockbrokers