Alphabet launched its Google Express service in 2013 to offer non-perishable goods to test markets in a few major US cities. Recently it announced that it is now expanding into fresh items as well in two test markets – LA and San Francisco. The pilot scheme will ship milk, eggs and other fresh foods. In doing so it was not only taking on the supermarkets and other grocery players, but also its main cloud rival, the retail giant Amazon.
#Alphabet is taking on supermarkets and other grocery players, but also its main #cloud rival, #AmazonClick To Tweet
However just as Google extended its non-perishable service into groceries, Amazon moved to extend its existing grocery delivery service (already available in a number of major US cities) to the UK through a deal with UK supermarket Morrisons.
Traditional players in the supermarket and grocery trade should be right to fear the encroachment of the two cloud giants into their turf – here’s why:
Amazon – the cloud and logistics giant that sells everything:
While Amazon is one of the world’s leading retailers already, this is not where either its profits are made or indeed it gains its real competitive edge. It is its cloud business AWS that provides the firm with most of its profit and it is its logistics and fulfilment operation that gives it the edge. Amazon may well sell a great deal itself, but an increasing proportion of what it offers is provided by other merchants. They simply use Amazon for logistics and fulfilment operation. Indeed in order to increase the scale of its logistics and fulfilment operation it has recently started to invest in aeroplanes to cut out the air-freight operators and shipping operations in order to get into bulk freight as well.
Overnight Morrisons becomes a merchant and wholesaler with nationwide coverage and logistics via Amazon.co.uk
Its deal with Morrisons is a ‘prime’ example of this. The UK supermarket chain had a good regional presence in Scotland and northern England, but less coverage elsewhere and was later than its rivals into the online grocery delivery business. Tesco which is the largest local supermarket player has UK-wide coverage and 40% of the online grocery delivery business with a wide range of non-grocery items available via Tesco Direct either for delivery or click from its stores. Overnight Morrisons becomes a merchant and wholesaler with nationwide coverage and logistics via Amazon.co.uk.
Amazon’s Prime Now option is currently available to members of Amazon’s Prime service in London, Birmingham, Newcastle, Manchester and Liverpool, who can order over 15,000 items for one-hour delivery costing £6.99, or choose two-hour, same-day delivery slots free of charge. Amazon Pantry, meanwhile, is available across the country to Prime customers, who can order more than 5,000 everyday items such as nappies, detergent and mouthwash for one-day delivery.
Alphabet – the cloud and advertising business that lets you search for things
Google’s parent Alphabet has its fingers in a host of different pies, but at heart it is a massive advertising business – after all this is where most of its profit is made. We don’t pay to use its search engine, it offers basic email and storage for free as well and its Google Apps and sider cloud operation aren’t massively profitable yet. However its search engine presence allows it to serve up a range of products to potential shoppers via Google Shopping.
Purchases on Google comes as Facebook and Pinterest also try to make it easier for people to shop says @billmewClick To Tweet
Google wants to go further than this though. It is looking to make it easier for people to shop while using its website. Last year it launched a trial feature allowing smartphone users to make online purchases from their search results. The introduction of “Purchases on Google” comes as Facebook and Pinterest also try to make it easier for people to shop while using their sites, putting themselves in position to profit from transactions or related advertising. Google sees ‘Purchases on Google’ as a big step towards helping retailers drive more mobile conversions and win more customers. Add to this its logistics and fulfilment operation with Google Express, a service that is now expanding into fresh items as well, and you can see how it is lining up against Amazon in so many areas.
Amazon and Google aren’t going to have it all their own way though – their UK rivals are fighting back: Sainsbury’s is aiming to “future-proof” its business with the £1.3bn offer to buy Argos owner Home Retail Group (HRG). HRG isn’t the most successful or profitable retailer, but it has an incredibly efficient logistics operation. Indeed its stores, being more like warehouses with a collection desk are already well set up for the kind of click and collect operation that many groups are seeking to offer.
The UK grocery market is already ultra-competitive
The UK grocery market is already ultra-competitive with incumbents like Sainsbury’s and Tesco along with Asda, which is owned by Amazon’s US rival Walmart. Then there are the discounters like Aldi and Lidl that are also stealing market share. At the same time the UK market is already the most advance in Europe for online delivery, with 27% of British shoppers saying that they shop online last year for their groceries monthly, compared with 22% in 2010.
Amazon and Google both have major operations elsewhere (Google taking on Apple with Android and Amazon taking on Netflix with Prime Movies), but across a broad swath of their operations they are now direct rivals as well as serious challengers for the retail incumbents. This should be of greater concern to the incumbents than to shoppers – after all any increase in competition or innovation in service and efficiency should be to the benefits of customers, as long that is as good level of competition is maintained.