Amazon Switches its Focus to Groceries
April began with a stark headline in the Mirror as the paper proclaimed it April Cruel Day. ‘Energy bills up,’ ran the accompanying text. ‘Council tax up. National Insurance up. Water bills up. Stamps up. Broadband Charges up.’
The threat of inflation and the accompanying cost of living crisis have been well documented, and unsurprisingly, millions of British shoppers have been deserting the traditional weekly shop at Tesco or Sainsbury’s in favour of the discounters, such as Aldi and Lidl.
But could the sector be heading for an even greater shake-up, with Amazon recently deciding to focus its attention on the UK grocery market?
According to the announcement, the e-commerce giant has said it wants to shut all its book stores, as well as its other bricks and mortar shops in the UK and the US. Instead, it wants to ‘focus fully’ on the rapidly growing groceries market – and also ‘zoom in’ on fashion.
This comes just months after Amazon released its intention to aggressively enter the UK supermarket sector with plans to open more than 260 cashless grocery stores in the next three years. The company is apparently planning 60 this year, with 100 in 2023 and a similar number in 2024.
Amazon is aiming to match other companies’ aggressive opening of convenience stores, with Tesco, Sainsbury’s and Co-op all exceeding 100 openings per year over the last few years. So far – and surprisingly for Amazon – it hasn’t all been plain sailing, with the company grudgingly admitting that openings are lagging behind the planned dates.
Why is Amazon doing this? Apart from identifying a rapidly growing sector, Amazon is interested in a customer’s ‘lifetime value’. According to one retail analyst, ‘the data shows that when Amazon gains a customer through their grocery channel – or an existing customer opts for grocery – those customers bring in, by far, the highest life-time value for the business’.
More simply, Amazon is very happy to sell you a book once or twice a month – but it would be even happier if you did your weekly shop there, and it has identified bricks-and-mortar supermarkets as the fastest way to bring you into the Amazon ‘ecosystem’.
Ultimately, of course, we can only buy so many groceries. If we buy cat food from Amazon, we won’t buy any from Sainsbury’s. Over the next few years, we are going to see some intense competition in the UK grocery market. In the short term, this will be good news for consumers, with competition driving down prices. But we could well see some high-profile casualties over time: there may be some high streets and retail parks with rather large holes in them.