AmazonFresh is undercutting UK supermarket prices by up to 20%, raising further pressure on grocers as the online giant grows its dominance in Britain’s retail market.
A study by consultancy Oliver Wyman used a price-checked basket of 50 different items to compare the cost of a shop from AmazonFresh versus the cost of online products at major grocers.
Accounting for both own-label and branded products in the first week of January, AmazonFresh was found to be selling at an 11% discount to Tesco, and a 12% discount to Ocado, with that price gap growing to 15% compared to Morrisons and 19% versus Sainsbury’s.
But when stripped of promotions including multi-buy offers, that gap widened to anywhere between 15% to 25% against UK competitors, who are already dealing with tough competition and thin margins.
Oliver Wyman retail partner Nick Harrison told the Press Association it proves Amazon has long-term and “very serious” ambitions in the grocery sector, though UK supermarkets are failing to pay close enough attention.
Sainsbury’s online fare had one of the largest price gaps compared to AmazonFresh (PA)
“I don’t think the supermarkets are as aware as they might be, because AmazonFresh is still relatively small and it’s only available in a smallish number of locations,” Mr Harrison said, though Amazon is currently available to 302 postcodes in London, Surrey, Hertfordshire, Hampshire and Bedfordshire.
“Everyone’s very interested strategically in what Amazon is doing,” he added but in terms of detail price checks “they’re not as firmly on the radar screens”.
AmazonFresh had the greatest advantage in branded products, which it consistently offered at a cheaper price compared to British supermarkets.
For example, the selling price of a 350 gram block of Cathedral Mild Cheddar was £2 on AmazonFresh, compared to £2.50 at Sainsbury’s, £3 by Morrisons, and £3.50 by Tesco and Ocado.
Mr Harrison said Amazon has the benefit of taking a long-term perspective in drawing new customers and is happy “not to make money for quite a while” when growing a new business.
Customers currently have to be an Amazon Prime subscriber to use AmazonFresh, meaning the company is able to take a holistic view of profit per customers, as products may be competitively priced in one area, but the company may charge a higher margin in another, he explained.
While the rise of AmazonFresh is expected to result in UK supermarkets reviewing their online prices and delivery charges, Mr Harrison said competition from Amazon is unlikely to kill the high street chains.
“I don’t believe in the end of store-based food retail, certainly not in the next 10 or 20 years, and that’s one of the reasons Amazon has bought Whole Foods and is branching out into having a physical presence,” he added, referring to the 13.7 billion US dollars takeover announced last summer.
There is also a prospect of partnerships, with AmazonFresh already offering groceries from Morrisons and north of England-based supermarket chain Booths on its site.
But there is a chance that UK competitors could end up acquisition targets.
Mr Harrison said: “It’s obviously not beyond the bounds of possibility that they would start buying grocers in other parts of the world to do the same.”