BRITAIN’S big supermarkets have had a dismal few years. Aldi and Lidl, two upstart German-owned discounters, have taken huge bites out of their market share, margins have been squeezed and record losses have mounted.
One refuge, however, was in online shopping, which Aldi and Lidl have been reluctant to embrace, despite the fact that British consumers are Europe’s most enthusiastic e-shoppers. Online grocery sales have been growing strongly, and the likes of Tesco, the biggest supermarket, and Sainsbury’s, have taken full advantage. Tesco, which runs a “Click+Collect” service, has about 40% of the online market.
In this section
Life in the slow lane
In, out, find a fib to shout
The great British sell-off
Fresh from the Amazon
Unity in disunity
Food and drink companies
Now, however, that refuge is looking less safe. On February 29th Amazon, an American online retailer, announced that it will start selling fresh food and groceries as well, in a tie-up with the fourth-largest British supermarket, Morrisons. Thus Amazon, with deep pockets and a wealth of experience offering food online in American cities, will now go head-to-head with Tesco and others. The move had been expected, but that will be of no comfort to its new rivals. Shares in Tesco and Sainsbury’s were down on the news, while shares in Ocado, an online-only grocer, plummeted by about 10%.
Shares in Morrisons rose. It has suffered more than most at the hands of Lidl and Aldi, selling, as it does, to the same customers in the same areas of the country. Yet the deal with Amazon gives it a straightforward new sales channel into the online market. Morrisons also makes its own food products, and under the new agreement it will supply fresh and frozen foods to Amazon to sell on its Prime Now and Pantry services. Until now, the Pantry service had offered only household goods such as cleaning products, drinks and pet food.
Morrisons has an existing arrangement to sell its groceries to Ocado, and there are fears that the Amazon deal could undermine that. But Ocado hopes that the intervention of the American giant will just increase the market instead. For Amazon, this is probably just the beginning of its journey into Britain’s grocery market, which is worth about £180 billion ($254 billion) a year.
“It is a real race now,” says Ray Gaul, an analyst at Kantar Retail, of the online market. And to add to the competitive pressures, the Amazon move comes only a month after Aldi launched its first British online-shopping service. This is, for the moment, limited to wine, offering hefty discounts on boxes of six, but there will undoubtedly be more to come. The north of England used to be the bastion of Aldi and Lidl, but Aldi is now advertising this service heavily in London, Tesco’s and Sainsbury’s backyard. The two discounters also have ambitious plans to open many more shops in the capital.
The new competition should be good for online shoppers, but less so, perhaps, for the 3m or so people who work in retailing. The same day as the Amazon announcement, the British Retail Consortium, a trade body, published a report predicting that 900,000 jobs could be lost in the industry by 2025. The authors blame this partly on the cost of the new “national living wage” and apprenticeship levies, but also the rise in online shopping and the increasing costs of running shops on the high street. Avocados and cheese twists straight to the door won’t be helping everyone.
Read more on http://www.economist.com/news/britain/21693973-american-giant-moves-online-grocery-shopping-fresh-amazon?zid=295&ah=0bca374e65f2354d553956ea65f756e0