RTIH looks at the key factors behind Amazon’s underwhelming entrance on to the hugely competitive UK grocery retail stage.
Amazon UK recently announced it was shutting three of its London-based Amazon Fresh checkout-free stores, including its first which only opened two years ago.
The e-commerce giant said the move was down to ‘optimisation decisions’ about its ‘portfolio of stores’, but added that it still plans to open new locations in London this year, one of which will be in Moorgate.
Here’s our take on why Amazon now has just 17 Fresh outlets left – 16 of which are in London, and the other at Sevenoaks in Kent. Way off the original target of 200+ by the end of 2025.
Location, location, location
Amazon Fresh decided to target highly competitive areas. Big mistake.
For example, Ealing Broadway, which became Amazon’s first opening in March 2021, was a short walk away from four major players – a Morrisons, Sainsbury’s Local, Tesco Express and Marks & Spencer.
The grocery sector in the UK is mature and highly competitive. Newbies, even one with deep pockets like Amazon, should enter at their peril, and when doing so, they should definitely not underestimate the competition.
Amazon just doesn’t get physical stores
It might rule the online waves, but Amazon has always struggled with physical stores.
In March last year it said it would close 68 non-food stores in the US and UK. Physical retail is about far more than cool frictionless technology and snazzy gimmicks , it’s about building brands via excellent customer experiences and strong product ranges.
Amazon has constantly struggled when it comes to playing the long bricks and mortar game.
Amazon now allowing entry to Fresh stores with payment card, as well as app QR code. Might alleviate some of the friction to just walk in its Just Walk Out stores pic.twitter.com/P3qGgHtzXm
— Patrick O’Brien (@pat_gdretail) July 24, 2023
A costly business
According to media reports, Amazon has slammed on the brakes due to fit out costs being multiple times higher than with a standard location.
We at RTIH have certainly been hearing that Amazon is not alone here. Across the board the price point for checkout-free stores is too high and therefore limiting adoption.
Until both consumer demand drives it and the ROI shows a real win, then this will continue to be a cool technology but of limited value in the high street.
The key win is to eliminate queuing at the checkout and that’s where the consumer will see significant advantages.
But in 2023, amidst major economic turmoil, the focus is on cost consciousness, and, in our humble opinion, without the ability to drive down costs this space is two or three years away from truly going mainstream.
Lack of payments choice
Another area that needs to be urgently addressed is restrictions imposed on how those using the stores could pay.
In 2019, Amazon announced that its new Amazon Go in Manhattan would be the first to accept cash. The company had no choice. New York had passed a law compelling all retail stores to offer customers the option to pay using their notes and coins.
In an article in the latest edition of RTIH magazine, Ron Delnevo, Chair of the UK Payment Choice Alliance, writes: “With many cities and states following New York’s example of banning “cashless” – and a Federal Payment Choice Act doing the rounds in Washington – there clearly isn’t much of a future for Amazon Go or, indeed, any other retailer looking to restrict payment choice.”
He adds: “Jeff Bezos should really have done a bit more research on public payment preferences before launching a “cashless” retail chain – or at the very least asked himself a fundamental question: is retail innovation which limits choice ever a good idea?”
A recent survey conducted by YouGov on behalf of the Payment Choice Alliance revealed that only 3% of the UK adults never use cash; 12% of the British public in any way support a “cashless” society; and 71% of adults – 40 million people – want a Payment Choice Act passed, banning retailers like Amazon Go from imposing cashless.
Delnevo concludes: “A Payment Choice Act would give the British public the right to use their notes and coins, when and where they choose.”
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