Profitero Blog
What does the Morrisons – Amazon agreement mean for the UK grocery sector?

Earlier this week, Morrisons and Amazon announced a new wholesale supply agreement, whereby hundreds of Morrison’s ambient, fresh and frozen products will be available to Amazon Prime Now and Amazon Pantry customers in the UK over the coming months.

It is the first time the US online retailer has struck a supply deal with one of the UK’s ‘big four’ supermarkets.

At the same time, Morrisons announced that it will continue to run its online delivery service through Ocado and it was nearing a new deal to add its products to a second Ocado warehouse.

According to Morrisons’ Chief Executive Davis Potts: “The combination of our fresh food expertise with Amazon’s online and logistics capabilities is compelling. This is a low risk and capital light wholesale supply arrangement that demonstrates the opportunity we have to become a broader business. We look forward to working with Amazon to develop and grow this partnership over the coming months.”

What does this landmark deal mean for the UK grocery sector?

According to Profitero’s VP Strategy & Insights, Keith Anderson, “For Morrisons, the deal is a low-capital, low-commitment way to increase volumes. This agreement with Amazon may also give Morrisons leverage in ongoing discussions with Ocado as Morrisons seeks to expand its geographic coverage for Morrisons.com to the entire UK. For Amazon, this agreement clearly signals its deepening commitment to grocery products as well as improving its logistics capabilities in the UK.”

The tie-up enables Amazon to finally go head-to-head with UK supermarkets, whether shoppers want their goods delivered via Prime Now, Amazon Pantry, or even – if and when it launches – Amazon Fresh. However, the biggest concern for supermarkets is how they’ll be able to compete with Amazon on price.

Profitero analysis conducted two months after the launch of Pantry reveals that Amazon has continued to maintain its significant price advantage over other grocers: UK supermarkets were priced between 18% and 26% higher on identical products in January 2016.

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Looking ahead: pressure on UK supermarkets will continue

The deal with Morrisons firmly establishes Amazon’s presence in the fresh food market and poses a direct challenge to the big UK supermarkets, already under fire from discounters Aldi and Lidl.

With competition fierce in the UK supermarket industry, this deal will inevitably place even further pressure on a highly competitive, as well as extremely lucrative, sector – with supermarkets facing the increasing risk of UK shoppers spending less with them and more with Amazon.

In terms of food assortment now available on Amazon, the agreement will modestly expand Amazon’s selection but according to Keith Anderson, is unlikely to be a substitute for Amazon’s more comprehensive Fresh service, which has been speculated to be launching imminently in the UK for months.

“In its headquarters market, Amazon has struck similar deals with wholesalers, distributors, and restaurants to expand selection available through its Amazon Fresh and Prime Now services”, noted Anderson.

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