Analysis

Amazon looks to disrupt UK online grocery sector with same-day delivery

Amazon has announced it will bundle a same-day grocery delivery service into Prime in much of the UK.

The service is available immediately in 40 postcodes across the south-east, including in London, Woking and Guildford. It will be extended to the rest of the UK by the end of the year.

There is a £40 minimum spend to qualify for free delivery in a two-hour window, or a fee of £3.99 to get a one-hour window for the same-sized basket. The company said same-day delivery will be available in certain areas on orders before 9PM.

UK Amazon shoppers were already able to buy some grocery items on the site, but Amazon had not offered a broad enough range to do a full weekly shop.

The Fresh offer is now given far more prominent billing on the site, with a range of items at prices comparable to those at supermarkets.

As grocery is a fairly low margin business, profitability in online groceries has often been elusive; Foley Retail Consulting estimates that distribution costs for online pure players are four times as much as those of physical grocers and profits are considerably lower.

Amazon’s advantage is its logistics arm, which uses automation to benefit from economies of scale.

Whether this success can easily be extended to groceries remains to be seen; groceries have different requirements for storage and limited shelf lives. To gain the same advantage Amazon will need to achieve high enough volumes to absorb the extra costs inherent in grocery items.

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