Amazon.com (AMZN) said it’s getting into bed with U.K. supermarket chain William Morrison’s Plc to pep up its effort to crack the $300 billion British grocery market.
Amazon launched its Pantry service in the U.K. in November but has struggled to make an impact on a market dominated by supermarket chains like Walmart Stores Inc’s (WMT) Asda unit that, for the most part, already have well-developed online and delivery platforms.
“It’s a good way for Amazon to get into an established supply chain for fresh and frozen products,” said John Ibbotson, managing director at consultants Retail Vision, “but whether they can do as well as the Big 4 is a moot point.”
Online orders and deliveries accounted for around 5% of the whole U.K. grocery market last year, or 8.9 billion pounds ($12.3 billion). According to analysis from consultants IDG suggests, the segment will nearly double in value and account for 9% of the overall market by the end of the decade.
Fresh, chilled and frozen goods account for a big part of overall grocery spending. Pantry has so far relied on Amazon’s traditional range of dry goods, meaning that shoppers need to complete their shopping elsewhere.
Morrison’s is the smallest of the “Big 4” after Asda, Sainsbury’s Plc (JSNSF) and Tesco Plc (TSCDY), and has been losing market share steadily over recent years to both its bigger rivals and to Lidl and Aldi, two privately-held German-owned discounters who have expanded aggressively in the U.K.. For Morrison’s the deal may be a lifesaver.
Ibbotson noted that Amazon’s biggest rivals already have the infrastructure for efficient delivery, and seem prepared to lose money on the service in order to defend market share.
“The combination of our fresh food expertise with Amazon’s online and logistics capabilities is compelling,” chief executive David Potts said in a statement.
At the same time, the deal is a blow to online-only retailer Ocado Group Plc (OCDGF), which had been long been touted as a natural partner for Amazon. while Morrison’s shares were up over 3% by lunchtime in London, Ocado’s were down over 7%. Ocado has been looking to transform itself from a customer-facing delivery service into a more of a business-facing technology company, Ibbotson noted.
Ocado’s consolation prize was a tentative deal with for Morrison’s to use its software as well as capacity at its delivery center in Erith, to the south-east of London, which is due to start operations at the end of next year. However, Ocado warned that “there can be no certainty that an agreement will be reached.”