Amazon has launched its online grocery service in London today (Thursday 9th June), its first step into the increasingly competitive UK grocery market. Amazon Prime subscripers will have access to the new service – AmazonFresh – but are required to pay an additional monthly fee to gain unlimited deliveries for orders over £40. Senior Retail Analyst, Nick Carroll, looks into the launch:

It has taken Ocado over 10 years to build a profitable online grocery offer and it will require significant investment from Amazon to make a success of Fresh. However, trends in the market are positive for online grocery and shoppers are prioritising convenience – the growth in the convenience market is testament to that. For many, online grocery shopping is fulfilling the big weekly shop that a supermarket would have traditionally provided.

The launch is well placed as there is demand in the market for an Amazon grocery service, with Mintel research into a potential AmazonFresh launch indicating significant interest in buying groceries from the provider, particularly if they were cheaper than their current retailer.

In terms of who is most likely to use the service, we can gauge from current online grocery figures that online services appeal the most to time pressed consumers, with particularly high usage among younger Millennials and those with young families. It is also far more popular with those living in towns and cities where a supermarket may not be within easy reach, so launching in London makes commercial sense in this regard.

Some may ask if we really need another online grocery service, but with the market expected to almost double in size by 2020, there is certainly room for another player. Indeed, Aldi and Lidl have shown that the existing order in the grocery market can be shaken up, but only through differentiation. Amazon’s real strength in this regard is its ability to offer a wider range of products through its marketplace. Its partnership with local producers and bakeries can further help to give it a differentiating position in the market.

The real challenge Amazon faces is the fact that the current service is locked behind both an Amazon Prime and a new AmazonFresh subscription. As our research indicates consumers are put off the service by this fact, Amazon will need to prove that a subscription to Fresh is worth the price.

Senior Retail Analyst at Mintel, Nick Carroll currently writes a range of UK & European retail reports and is regularly called upon to comment on breaking retail stories in the UK’s leading media. Prior to joining Mintel Nick worked for over eight years in retail for both Jones Bootmaker and Barratts.

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