Last week, online sales behemoth Amazon branched into the food deliveries market by striking up a deal with Morissons to sell their groceries on its website. Selling fresh food is not a new idea for Amazon -in the US, Amazon Fresh has been established for some time – but the startup costs in the UK as well as the competition from Ocado, which has been running since 2010, and the online delivery services of major UK supermarkets such as Tesco and Sainsbury's, have prevented Amazon from taking the leap so far.
The deal last week means that for the first time and fresh and frozen goods will be available for Prime Now customers in the major cities of London, Birmingham, Manchester, Liverpool and Newcastle. To have goods delivered within a one hour slot will cost £6.99 but will be free within a two hour window.
But the real significance of this deal is that Morrisons has essentially become a wholesale supplier for Amazon in this new market. Although all products will still carry Morissons branding, Amazon has free reign to set their own prices meaning they could differ from the supermarket shelves. In this way, has Amazon already relegated Morrisons supermarkets to become 'dark stores'?
Well not necessarily since Morrisons has been working with Ocado to develop technology to allow staff in supermarkets to act as 'pickers' for online orders. Rather than running expensive warehouses, this will also ensure that the public stores remain open and staffed. Morrisons has worked with Ocado since 2013 with a £210 million deal but the delivery service lagged behind other supermarkets, only the north of London being served in the capital and so missing out on most of the market in the city that spends the most on delivered groceries.
By joining with Morrisons, the supermarket may be able to reverse this trend and the stock market seemed positive to the new deal with Morrisons shares going up 4.6%. But with other rival supermarkets having offered online shopping for years (in part sparked in itself by the growth and popularity of online shopping shown by Amazon), Morrisons has a lot of catching up to do. Nevertheless, investors could clearly see the importance of the deal with Ocado shares going down 9.2%, sparking fears in their head office (though CEO Tim Steiner has waved them away) that if Morrisons is more successful with Amazon they will fully elope, which could cause the beginning of the end for Ocado.
The idea of using the web to order home delivered groceries was not new when Amazon Fresh properly launched in the US in 2013. HomerGrocer.com and Webvan had already launched in 1996/7 but gone bankrupt within four years, eventually in fact to be bought out by Amazon in 2007 to start beta testing in Seattle for their own grocery deliveries - what would become Amazon Fresh.
These earlier businesses, even though essentially using the same model as Amazon is using to now make millions, were simply ahead of their time. They invested too heavily in fleets and warehouses when the infrastructure of the web was still evolving. Without mainstream wifi, 4G and mobile shopping in the early beginnings of the dot.com era, the ease and efficiency which makes online shopping so appealing now was not as simple and it was easier to go to a shop itself. It is a classic example of how growing too fast can be fatal for a business, even if the idea itself is a potential goldmine. Always make sure the projection of a business is properly forecasted within the times it actually resides in – do not over-estimate the business's impact, particularly if it's success heavily relies on other software/developments that are constantly and rapidly changing in the online sphere.
But for Amazon, with Black Friday 2015 having the highest rate of online sales ever, the rise of personally tailored PPC (pay-per-click) web advertising and the Mobile World Congress this year launching plenty of new smartphones to continue this upward trend, the launch of Amazon Fresh in the UK seems to have been timed just right.
