Amazon Begins Eating U.K. Grocer's Lunch With Butter, Cheese Delivery

By Saabira Chaudhuri 

LONDON-- Amazon.com Inc. is expanding its same-day delivery service in the U.K. to include items like butter and cheese, a move that comes as the online retailer is widely expected to launch a full grocery service in the country.

Amazon already offers a range of nonperishable products like toilet paper, diapers, water and coffee to members of its Prime service in Birmingham and London. The company said Tuesday it was expanding that offering to include a small range of chilled and frozen items in those cities.

The news comes as the Seattle online retailer in recent weeks has quietly rolled out a program--called Amazon Flex--in its hometown to ferry merchandise to customers' homes using a network of independent contractors, similar to so-called on-demand services such as Uber Technologies Inc.

Online grocery shopping makes up roughly 5% of the U.K.'s grocery market at present, and that share is projected to increase to 8.6% by 2020, according to the Institute for Grocery Distribution.

U.K. media have for months reported that Amazon--which last year reported a $241 million loss on $89 billion in sales--is well on its way to launching an online grocery offering that would include fresh food in the U.K. The company has repeatedly refused to comment.

In the U.S., Amazon sells perishable groceries through its Fresh grocery delivery service, which offers things like fresh fruit, meat, ice cream and milk across a handful of cities.

While Amazon hasn't disclosed plans to launch Fresh in the U.K., the company has begun looking for staff in the area of grocery retail. Earlier this month Amazon advertised for a London-based senior vendor manager in grocery, saying its aim is "to build the widest range of consumables products in the U.K."

If Amazon does launch a full-fledged grocery offering in Britain, it would go head-to-head with the country's four largest grocery chains, all of which offer a home-delivery service or click and collect, where customers order online and pick up from a store, gas station or some other location.

Amazon's entry is expected to exacerbate an already vicious price war in the U.K., with grocers competing furiously for customers who are increasingly being enticed by discount grocers Aldi and Lidl. Amazon would also be competing with online-only grocer Ocado.

"Amazon clearly is focusing on the immediacy of its delivery solution rather than providing a broad grocery range initially," said Exane BNP Paribas analyst John Kershaw. "Until Amazon Fresh offers a broad chilled, frozen and ambient range, plus a selection of branded and own-label products at compelling prices, we'd not expect Amazon Fresh to be disruptive."

Write to Saabira Chaudhuri at [e-mail]

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September 29, 2015 12:46 ET (16:46 GMT)

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