Amazon has made a surprise move into everyday grocery through its US web site. But is it likely to be a threat to the UK multiples' online services, asks Beth Brooks
Online retailer Amazon has made a surprise entry into food retailing in the US through a new online category called Health & Personal Care. It is offering more than 2,000 ambient branded products under the heading Food & Snacks, sub-listed as breakfast foods, cereals, herbs and spices and snacks and cookies.
But can Amazon make it work? More importantly, could it add the offer to its UK portal, pitching it into direct competition with the UK multiples' online services?
Although Amazon has offered more than 100,000 gourmet foods, including cheeses, meats and chocolates, through its US portal since 2003, the move into everyday grocery territory marks a radically new direction.
A host of big brands, including Kellogg's, Campbell's, Del Monte and Kraft, feature in the new category and Amazon boasts on its web site that it is "adding to the assortment daily, stocking up on new and natural organic items", as well as well-known household brands.
The retailer clearly believes that it can create a viable business by satisfying consumer demand for bulk purchases. For $53.69 (about £30) shoppers can purchase a case of 60 x 2.2-ounce cups of Kellogg's Cereal in a Cup, or for $18.90 (£10) they can buy six boxes of Kellogg's Special K Vanilla Snack Bites. Most products are shipped in one to two weeks but some can be delivered within 24 hours.
Amazon is unwilling to give details of the scope of its ambitions and whether they extend to the UK. "We never speculate on what we might do or how we might expand in the future," says a spokesman. However, he confirms that in the US it has been ramping up its food offer for a while and expanding into ambient branded products. "Our Health & Personal Care store in the US has been selling food for some time. We are always looking to expand our ranges."
He adds: "We offer more than 2,000 products and have recently expanded the product offer further."
Analysts, however, are not convinced. "I am somewhat surprised," says Richard Ratner, an analyst at Seymour Pierce. "Lots of food is sold via e-commerce, but I am not certain that Amazon is the right medium for this."
Clive Black, an analyst at Shore Capital, agrees: "Amazon must see this as an opportunity to be exploited if it is testing or entering the food market. However, while it has a strong presence and reputation in books and CDs, I suggest it will take time to develop a credible presence in bulk food."
There is another question mark over its lack of expertise in the food arena. Nick Gladding, an analyst at Verdict Research, believes that Amazon should not go into grocery without a partner. "Amazon cannot hope to set up a full-scale operation from scratch on its own and make it profitable.
"Food retailing is low margin so requires high volumes. Chilled, fresh and frozen foods require their own storage and logistics infrastructure and can't simply be bolted on to Amazon's existing infrastructure."
Amazon, however, thinks it can go it alone. Its spokesman says: "On our US site, some of our stores are run by a third party, but Health & Personal Care is run by Amazon."
Even if it does pull it off in the US, analysts are sceptical that the model of targeting bulk buyers would work in the UK, especially given the strength of the UK's existing online grocery retailers.
Jonathan Pritchard, an analyst at Oriel Securities, says: "It is most unlikely, in my view, that Amazon will be able to make inroads into the UK food retail sector. Companies such as Costco did not work because we were unfamiliar with larger pack sizes, and our houses and freezers are not big enough to store gallons of salad cream or half a cow."
Gladding agrees. "The UK market is different to the US. It is hard to see why consumers would shop at Amazon instead of Tesco.com or Ocado, given the need to buy in bulk. UK consumers are unlikely to stockpile food in this way," he adds.
Neil Jewsbury, head of trading and marketing at Ocado, is certainly not unduly concerned. "Our business is based around fresh products, so Amazon's bulk strategy is no direct threat to us," he says.
Online retailer Amazon has made a surprise entry into food retailing in the US through a new online category called Health & Personal Care. It is offering more than 2,000 ambient branded products under the heading Food & Snacks, sub-listed as breakfast foods, cereals, herbs and spices and snacks and cookies.
But can Amazon make it work? More importantly, could it add the offer to its UK portal, pitching it into direct competition with the UK multiples' online services?
Although Amazon has offered more than 100,000 gourmet foods, including cheeses, meats and chocolates, through its US portal since 2003, the move into everyday grocery territory marks a radically new direction.
A host of big brands, including Kellogg's, Campbell's, Del Monte and Kraft, feature in the new category and Amazon boasts on its web site that it is "adding to the assortment daily, stocking up on new and natural organic items", as well as well-known household brands.
The retailer clearly believes that it can create a viable business by satisfying consumer demand for bulk purchases. For $53.69 (about £30) shoppers can purchase a case of 60 x 2.2-ounce cups of Kellogg's Cereal in a Cup, or for $18.90 (£10) they can buy six boxes of Kellogg's Special K Vanilla Snack Bites. Most products are shipped in one to two weeks but some can be delivered within 24 hours.
Amazon is unwilling to give details of the scope of its ambitions and whether they extend to the UK. "We never speculate on what we might do or how we might expand in the future," says a spokesman. However, he confirms that in the US it has been ramping up its food offer for a while and expanding into ambient branded products. "Our Health & Personal Care store in the US has been selling food for some time. We are always looking to expand our ranges."
He adds: "We offer more than 2,000 products and have recently expanded the product offer further."
Analysts, however, are not convinced. "I am somewhat surprised," says Richard Ratner, an analyst at Seymour Pierce. "Lots of food is sold via e-commerce, but I am not certain that Amazon is the right medium for this."
Clive Black, an analyst at Shore Capital, agrees: "Amazon must see this as an opportunity to be exploited if it is testing or entering the food market. However, while it has a strong presence and reputation in books and CDs, I suggest it will take time to develop a credible presence in bulk food."
There is another question mark over its lack of expertise in the food arena. Nick Gladding, an analyst at Verdict Research, believes that Amazon should not go into grocery without a partner. "Amazon cannot hope to set up a full-scale operation from scratch on its own and make it profitable.
"Food retailing is low margin so requires high volumes. Chilled, fresh and frozen foods require their own storage and logistics infrastructure and can't simply be bolted on to Amazon's existing infrastructure."
Amazon, however, thinks it can go it alone. Its spokesman says: "On our US site, some of our stores are run by a third party, but Health & Personal Care is run by Amazon."
Even if it does pull it off in the US, analysts are sceptical that the model of targeting bulk buyers would work in the UK, especially given the strength of the UK's existing online grocery retailers.
Jonathan Pritchard, an analyst at Oriel Securities, says: "It is most unlikely, in my view, that Amazon will be able to make inroads into the UK food retail sector. Companies such as Costco did not work because we were unfamiliar with larger pack sizes, and our houses and freezers are not big enough to store gallons of salad cream or half a cow."
Gladding agrees. "The UK market is different to the US. It is hard to see why consumers would shop at Amazon instead of Tesco.com or Ocado, given the need to buy in bulk. UK consumers are unlikely to stockpile food in this way," he adds.
Neil Jewsbury, head of trading and marketing at Ocado, is certainly not unduly concerned. "Our business is based around fresh products, so Amazon's bulk strategy is no direct threat to us," he says.
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