Amazon to attack grocery market

Amazon entered the UK grocery market last year with a rather strange offer that failed to impress anybody other than those people who recognised that this was just an opening gambit.

More in the Amazon grocery bag than you think

It utilised its Marketplace platform to accept orders from customers and then have the individual product vendors deliver the goods to them. Only 15% of goods are delivered direct from Amazon. The result has been customers receiving multiple orders, which achieves little more than annoying most people.

However, where it has worked best is for bulk orders – especially from small businesses – where a modest number, or even single-product orders, are delivered to the firm’s premises.

But with the recruitment of Ajay Kavan from Homebase and former Asda executive Doug Gurr, as well as the parachuting in of US head of grocery Bram Duchovnay to oversee the UK operation, Amazon clearly looks to have big plans for grocery retailing.

You simply don’t bring this firepower in unless you have serious intentions. But what can it achieve in the very competitive UK market when there are already Sainsbury’s, Asda and Tesco along with Ocado slugging it out for online orders?

The answer could well be in a focus on non-perishable goods. The guys at Research Farm reckon there is a proven opportunity for Amazon in non-food items such as health and beauty and household cleaning products. They point to as doing pretty well in this part of the market.

Unlike fresh products there is no need to chill, freeze and worry about sell by dates of goods etcetera. And the other great thing is that many non-perishable goods are recurring purchases so toilet rolls, nappies, and shampoo have a regular monthly, bi-monthly purchase pattern for most consumers.

Plenty to go for in non-perishable products 

Tapping into such recurring ordering patterns was the model for Quidsi, which Amazon bought back in late 2010. The company owned that started out selling just nappies and branched out into other baby products, and it also operared that was its everyday essentials products website.

With this business under its belt Amazon will no doubt have learned much about perishable goods retailing. Now what it needs to do is create a centralised fulfilment capability in the UK. This has not been necessary with its Marketplace model so far and it would be a big ask. But whatever Amazon has tackled in the past it has typically been successful.

It must have also accumulated a great deal of knowledge of order/delivery patterns both in a company-wide sense and on an individual customer basis. This will all add to its capacity to stake a claim for a slice of the non-perishables grocery pie.

And of course it could buy Ocado – as previously discussed on – for its expertise in grocery delivery and whose market value continues to fall as its business model comes under intense scrutiny. Housed within the Amazon business it would be a different proposition.

Expect to hear lots more from the Amazon grocery business this year.