Amazon has made grocery delivery free for Prime members from Monday. Amazon has said it is not looking to make a profit out of grocery, which adds to the fear from supermarkets as margins have been worn down significantly by the huge growth in online grocery seen over the pandemic.
The highly automated warehouse only model used by Ocado and Amazon – costs about half as much as picking from supermarket shop floors. However, over the pandemic it has also shown how inflexible the strategy is – many will remember queuing for 10+ hours on Ocado’s site and have vowed never to return.
By making grocery deliveries free to its estimated 15 million Prime members, Amazon has thrown down the gauntlet to other supermarkets. It is not sustainable to continue to subsidise the costs of picking and delivery. If Amazon takes market share from the supermarkets, it will impact their ability to get economies of scale and address the profitability challenges they have.
Amazon will lose money with free grocery deliveries. But making a loss to gain share is the norm for Amazon!
However, only around 5% of Brits have ever bought food from Amazon, and typically those have been “store cupboard” goods that are not perishable from the main Amazon.co.uk site. At the moment all Amazon’s grocery customers are in London and a few other big cities. Amazon Fresh’s range is also towards the premium end. With many looking to save money, the pricey artisanal offerings may have limited appeal.