Amazon is expanding its AmazonFresh grocery delivery service to new markets, including Boston and the UK in 2016, according to a report from Re/code. The expansion will be the first in the past 18 months for Amazon, which has slowly rolled out the service in parts of Washington State, California, New Jersey, New York City and Philadelphia.
The e-Commerce giant had plans to launch the grocery service in the UK as early as July 2015, according to The Times. In March 2016, Amazon partnered with UK-based supermarket chain Morrisons to deliver groceries via its Amazon Prime Now and Amazon Prime Pantry services, further indicating that the retailer has serious plans for its grocery offerings in the country.
With a $15 billion online grocery market in the UK, twice as large as the $7 billion U.S. market (according to research from IGD) it’s clear that Amazon is following the money overseas. In fact, by 2020, online grocery in the UK is expected to be as high as $28 billion, compared to only $18 billion in the U.S.
Taking Advantage Of Pricing Pressures
The decision to finally expand after 18 months also aligns very much with the current grocery industry climate, with shoppers avid for less expensive grocery shopping experiences. Organic and natural foods, which have traditionally been a staple of brands such as Whole Foods Market and Trader Joe’s, are now being offered at more grocery stores, from warehouse clubs such as Costco to conventional retailers such as Walmart and Kroger. This increase in competition has led shoppers to gravitate toward these cheaper offerings, and has even served as a catalyst for Whole Foods to cut prices on products of its own.
With Whole Foods sales having dipped for five straight quarters, the company just recently debuted its 365 by Whole Foods Market store formats, which are designed to be smaller and more focused on value-driven pricing and a limited selection.
“The company has lowered prices, remodeled stores and launched a national advertising campaign all to no avail as sales continue to slip,” Scott Mushkin, an analyst at Wolfe Research, according to Bloomberg. Mushkin referred to the 365 rollout as a “sign of the company’s search for answers.”
Amazon Building On Grocery Growth
While consumers may not always be purchasing organic foods as part of their online shopping journeys, Amazon is capitalizing on the consumer demand pressuring grocers by doing what it does best: shipping orders out to member consumers in a timely manner.
A survey from Cowen & Company indicated that the number of people shopping for groceries on Amazon has actually increased 18% from Q1 2015 to Q1 2016, compared to dips for Walmart (5%) and Target (4%) in online grocery sales over the same period. In outpacing their contemporaries by such a wide gap, it is no wonder that Amazon now feels comfortable expanding its delivery capabilities.
With grocery paced to become an even larger part of e-Commerce shopping both in the U.S. and overseas, one can only expect Amazon to continue its delivery expansions at a quicker rate going forward.