Amazon is trying its luck in the UK market again, four years after failing to make any headway in the retail world’s most complex market. The latest reset follows Amazon’s decision to shut all 19 Amazon Fresh stores in the UK earlier last year, after launching the physical grocery supermarket in the country in 2021.
Some of these stores were later converted into Whole Foods Markets, where the company sells premium grocery products, focusing on organic, high-quality foods. Now, the e-commerce major eyes a re-entry, but it wants to win the UK market by leveraging its logistics capabilities to deliver online grocery and fresh products.
The company’s revamped plans also promise the same-day delivery of perishable food items, a format that has seen success for it in the US. If executed well, Amazon’s latest efforts could help it penetrate the highly competitive grocery delivery market in Britain.
Strategic Shift After Failed Tech-led Experiment
Amazon’s experiment with tech-led, cashierless store formats failed not only in the UK but also in the US. The company closed its Amazon Go and Fresh stores everywhere, including the US, strictly shifting its focus to fast grocery deliveries and the Whole Foods format.
For the UK push, the e-commerce major has been strengthening its delivery infrastructure by partnering with key grocery and delivery players in the country, including Morrisons, Co-op, Iceland, and Gopuff.
With this strategic pivot to Whole Foods stores, Amazon wants to compete with the other major supermarket players like Walmart and Kroger, and delivery players like Instacart. Amazon’s ecosystem of Prime users and its logistics infrastructure can help create a loyal customer base in the upmarket grocery sector, just like these players.
Amazon already serves online grocery delivery in over 5,000 cities in the US, and is even testing 30-minute delivery across select locations. With its £40 billion infra boost plan for the UK, Amazon aims to replicate the same playbook. This year, in January, the company launched a similar 30-minute delivery pilot in London as well.
Why Amazon Fresh and Go Failed to Scale
Amazon’s idea with Fresh and Go was to incorporate AI into the physical retail using cashierless ‘just walk out’ technology for perishable food items, grab-and-go snacks and meals.
The problem was that the idea was high on tech but low on ROI. The high cost of implementing AI across the stores, the recurring maintenance cost of cameras and sensors made it an unsustainable model.
Add to it poor customer experiences, tech glitches and people’s inability to navigate tech, causing delays, and Amazon’s failure to provide a unique value proposition beyond high-tech shopping infrastructure. All this made it hard for it to scale the new format across many locations.
Why Logistics is Amazon’s Real Strength
Logistics is Amazon’s strength, and it knows the game of unit economics well. Doubling down on delivery-first grocery and faster logistics enables it to win over customers who don’t have time to visit physical grocery stores to buy daily or weekly food and household essentials.
With this new approach, Amazon seems to be taking lessons from food-tech players in India, including Swiggy, Zomato and Zepto. These players have captured a significant part of the online grocery experience across urban cities in India, leaving no space for Amazon.
Fast deliveries with large fleets and massive expansions of their local fulfilment centres and smaller delivery hubs or dark stores have made India a case study for bigger players. Amazon’s UK plans make sense as the market is yet to see the US and India-like revolution in speedy household grocery deliveries.
What Will It Take for Amazon to Win the UK Market
Amazon is an e-commerce juggernaut, and grocery is just a piece of the puzzle it’s trying to solve. Grocery is also a low-margin game. For a bigger fish like Amazon, the current bet makes sense because fast delivery strengthens its grip on everyday consumer spending.
However, a fresh supply chain business is a difficult business to be in and scale. Sure, Amazon has the wherewithal to make it work, but its weak positioning in the UK market, just 1% share, against the entrenched incumbents will require major investment efforts across pricing, logistics and supplier relationships.
Amazon’s UK reentry will reflect its US strategy, where it is one of the largest food retailers. The company can win the UK market but only if it positions itself well against supermarket giants and delivery economics scale.
Low margins, difficult supply chains and sensitive customers make the game even more challenging, but Amazon can win as long as it plays to its strength, i.e. logistics and strong last-mile delivery capabilities.
