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Insights and News /

03 May 2019

How far can ‘Amazon Go’?

Louis Blaxill

Louis Blaxill
Analyst | Products and services | London

Patrick Winters

Patrick Winters
Director | Products and services | London

As unconfirmed reports suggesting Amazon have identified a store site in Oxford Circus surface, it’s worth pausing to reflect on what this means for the grocery market in the UK. Amazon is reportedly aiming to roll out 3,000 stores (worldwide) by 2021, outlining their clear intentions to become a major player in the grocery market. However, Head of European Retail at Bernstein has described their venture into the UK as “an even bigger challenge than the segments Amazon has targeted for the last 10 years.”

Much of the marketing for Amazon Go stores is centred on efficiency. Their website focuses on how they leverage advanced AI and machine learning to monitor their customers as they select items, eliminating the need for traditional check outs.

Whilst the elimination of queuing to pay is undeniably an attractive proposition, it will not be enough to dethrone the household names that have established themselves in the UK grocery market. Adoption rates of equivalent technological advances in the UK (such as self-scanning tills) are still stubbornly low. Even if the technology were to prove appealing, other supermarkets could follow suit with relative ease. Tesco are already trialling an app that would render their tills redundant.

Supermarket customers in the UK have different tendencies and preferences to those in the US. This difference was highlighted by Tesco’s limited success when they attempted to establish themselves in the US market. Typically, speed and efficiency are a larger part of brand perception in the US. This characteristic is shared by Amazon Go’s initial target market in the UK, offering an attractive option for ‘on the go’ consumers. In order to expand beyond this into the space of the traditional family shop, they will need to work hard to build their provenance and quality credentials.

Amazon are making a concerted effort to strengthen the perceived quality of their brand in the US. For the first time, Amazon Meal kits have appeared in Wholefoods stores, visibly strengthening their affiliation with the up-market grocery store, and borrowing brand equity. For Amazon Go to resonate with the British consumer, they must start by selling British-sourced products, with a focus on the packaging and presentation. Purchasing food is an emotional decision that has direct impact on the health and wellbeing of the individual (and very often their family). Consumers are becoming increasingly interested in the provenance of their food as evidenced by the importance of ‘Britishness’ in food branding displayed not just by the major grocery players but also the German discount retailers.

Competing on price alone would be an unattractive proposition in the long run for Amazon as margins in the grocery market are already notoriously low. Amazon Go has the potential to disrupt ‘on the go’ retail. Yet, if they are to realise their full potential in the UK, they should consider strengthening the quality perception of their brand and focus on tailoring their proposition to cater to the changing characteristics of the UK consumer.