It is a wonder Amazon is interested in U.K. grocery.
Ocado, Britain’s largest online-only grocer, blamed intense competition for “sustained and continuing margin pressure” in a trading update Tuesday. The shares fell 13% in morning trading.
Amazon launched its AmazonFresh grocery operation in early June in a limited number of London neighborhoods. But this isn’t the problem for Ocado yet. In fact, Ocado processed 19% more orders a week for the quarter through 7 August than in the prior year—its fastest growth in more than half a decade.
Ocado’s real difficulty is the price war facing all U.K. grocers. The German grocers Aldi and Lidl, which don’t have online operations, continue to roll out stores with market-beating prices. Market leader Tesco has responded with a new suite of cheap products—including for online delivery. Wal-Mart’s ASDA chain is expected to fight back after market-share losses.
The poor market hasn’t deterred Amazon: last week it doubled the number of London ZIP Codes covered by AmazonFresh. It has pushed hard amid similar value-oriented competition in the U.S., where food prices are also falling, albeit not as dramatically as in the U.K.
But an added complication for AmazonFresh in London is the pound’s Brexit-related plunge this year. The cost of imported food for retailers rose 12.7% in the year through August, according to official statistics released Tuesday. This is also creating the margin squeeze to which Ocado sees no imminent end.
Even by its own forward-thinking standards, the U.S. retail giant is playing the long game in U.K. grocery.
Source: The Wall Street Journal