Amazon food delivery service faces own-label challenge

Kantar Worldpanel has warned that Amazon faces challenges as it rolls out its chilled and frozen one-hour delivery service to parts of London.

The Prime Now service, which is expected to be a forerunner of a full Amazon Fresh grocery delivery business in the UK, was launched in Birmingham last month and has been extended to parts of London. But Fraser McKevitt, head of retail and consumer insight at Kantar Worldpanel, said the online retailer would have to overcome hurdles as the business was rolled out.

Online grocery sales are increasing at a healthy rate of 14% each year, in stark contrast to overall grocery which is barely growing at all. Despite this rapid rise, just over a quarter of households buy any groceries online in a year, leaving 20 million shoppers-worth of untapped potential. Yet while the Amazon Fresh model has already worked well in the US, the UK grocery market poses a very different challenge. Own-label goods arent the same staple in the US as they are here, where they make up half of total grocery purchases. Amazon could find it very hard to compete in this area, but partnering with alternative providers, as it has with Whole Foods in the US, could be the answer.

However, he added that a potential Amazon Fresh service could suit modern shopping habits with customers buying little and often.

By imposing a minimum spend for delivery, conventional online shopping fails to cater for the fact that 60% of grocery sales are purchased in top up shops, which are often unplanned and contain only seven items on average, he said. If it means smaller baskets combined with faster delivery, Amazon Fresh could well grow the overall online grocery market. While you wouldnt want to bet against Amazon to succeed against the traditional grocers already trading online, the site will need to differentiate its offer in a genuinely compelling way.

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