On 29th Feb 2016, Morrisons, the fourth largest supermarket in UK, signed a deal with Amazon to sell food directly on Amazon Pantry, the place Amazon Prime members can go to shop for groceries and household goods.
At first glance the deal looks a real winner (hence the recent share price jump!). Waitrose have Ocado, Sainsbury’s have been doing their utmost to secure Argos to boost their logistics operation and Tesco have always been ahead of the curve when it comes to grocery delivery in UK. In comparison, Morrisons didn’t seem to stand a chance. When you also consider that they sold themselves to Ocado in a 25 year deal that prevents them from ever launching their own online delivery operation, you can understand why they felt they had to do something. Especially in a grocery market that is starting to catch up with the rest of the online retail sector, leaving Morrisons behind.
What does the Amazon partnership mean?
Unfortunately for Morrisons the Amazon partnership, which is effectively a wholesale agreement between the two companies, is far more likely to be the catalyst for their demise than it is for their transformation. And as long as Amazon get their increased Prime subscribers, it’s unlikely that they will be concerned about the consequences of a failed relationship. Research from ParcelHero shows that Prime members shop 50% more frequently than non-members on Amazon, and spend more than double the amount. So it’s no wonder Amazon aim to use the £180Bn grocery market as a catalyst for driving more subscription and loyalty from consumers.
And as Amazon begins to accelerate its grocery delivery proposition in the coming years, inevitably building market share through pure convenience and price, customers will start to realise how little value there is in the existence of Morrisons stores. As soon as Amazon start sourcing the branded products themselves Morrisons will effectively become a shed full of fresh food that nobody wants or needs to visit anymore. With online retailing numbers continuing to skyrocket and footfall in shops continuing their decline this is definitely not what Morrisons want.
What will happen to Morrisons?
In the next 3-5 years it’s highly likely Amazon Pantry will be just as popular as Ocado is today, with 30 min delivery slots and instant coffee delivery a very real possibility. And while there will always be those among us who still prefer quality over convenience, Amazon have already proven that cheap and quick generally wins the race. And where does that leave Morrisons? Well unfortunately, not in the picture.
While it’s great news for consumers that we can get eggs or milk at very short notice either by visiting our local shop or ordering on our mobile devices, we all know which is going to be more popular. And without a unique selling proposition and the increased pressure from the likes of Aldi and Lidl who will continue to gain market share, the future doesn’t look bright and certainly not yellow.
The only potential way out of this quandary is for Morrisons to act as a click and collect service for Amazon in the hope that increased footfall will drive up sales and profits with consumers purchasing on impulse when they visit the stores. But do Morrisons really want to be the 3rd party to Amazon? In my opinion, it is unlikely that they will have a choice.