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Amazon extends one-hour grocery delivery service to London with many products cheaper than supermarkets

| International retailers

Amazon yesterday extended its one-hour delivery service of a chilled and frozen foods into London in what is thought to be a precursor to the launch of its ‘AmazonFresh’ service in the UK.

The online giant began trialling the service in Birmingham at the end of last month with it now available in selected postcodes in the capital.

Amazon Prime members can order from a range of around 50 chilled and frozen products including Lurpak butter, Chicago Town pizzas, Cathedral City cheddar cheese, Birds Eye fish fingers, Kingsmill bread, and Ben & Jerry’s ice cream, alongside its existing range of ambient products.

A recent study for trade magazine The Grocer, carried out by Brand View, showed that many of the new products on offer from Amazon are cheaper than Asda, Tesco, Sainsbury's and Morrisons. The research found that the online retailer matched or beat the prices of major chains in 33 out of 44 items. For example, a 500g pack of Lurpak Spreadable butter costs £2 from Amazon, compared with £3.25 at the big four.

Overall, Amazon was the cheapest retailer with a basket of items, where a price match could be found, costing 15.5% more at Morrisons, 14% more at Sainsbury's, 8% more at Tesco and 6.2% more at Asda.

Rumours have been circulating in recent months that the company is preparing to launch its AmazonFresh service in UK after it secured leases on a number distribution warehouses with food-handling facilities. The service has been available in a host of US cities for a number of years, offering paid subscribers free same-day and early morning delivery on a large range of fresh food items. In the UK, Amazon already offers thousands of ambient lines, although delivery costs can be relatively high.

A move into the fresh food sector would challenge the likes of Ocado and delivery services offered by the Big 4 supermarket multiples. However, Fraser McKevitt, head of retail and consumer insight at Kantar Worldpanel, believes that while the AmazonFresh model was working well in its domestic market, it will face different trading challenges in the UK.

He said: “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. It’s understandable that Amazon wants to get involved. Yet while the AmazonFresh model has already worked well in the US, the UK grocery market poses a very different challenge. Own label goods aren’t 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.

“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. If it means smaller baskets combined with faster delivery, Amazon Fresh could well grow the overall online grocery market. While you wouldn’t 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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