The arrival of AmazonFresh in the UK, and more recently Prime Now in Paris, is set to shake up a highly competitive European grocery market.
In this transcript from the Profitero Podcast Series, Keith Anderson speaks to Andrew Pearl, Profitero’s new Director of Strategy and Insights EMEA, who has spent the last 13 years in category management and shopper marketing at Mars, McCormick and Tata Global Beverages.
They discuss how AmazonFresh and Prime Now are likely to disrupt the European grocery market, how FMCG brands can best work as a supplier to Amazon, as well as the possible implications of Brexit on eCommerce.
Q: The big news in the UK right now is Brexit. There’s obviously more uncertainty than answers at the moment, but what are your initial thoughts?
The UK is, without doubt, the number one European eCommerce market, with the highest spend per online shopper in Europe. You’ve also just got to look at recent online grocery predictions from the IGD which forecasts that UK online grocery spend will grow from about £10.5 billion in 2016 to just under £18 billion by 2021, a 70% growth.
One type of single market that is slightly less well-known is the digital single market, and this was set up by the European Commission to standardise trading rules on eCommerce across Europe. Britain is the largest contributor so it’s not something that’s going to change significantly overnight. In the short term, companies will still be looking to our expertise and to trade with us.
In the more medium term, as and when the real negotiations start for Brexit, the wider considerations are whether the UK will stay a member of the single market. If we leave, that will have huge implications on the cost of goods for suppliers, but also for the cost of trade if certain trade tariffs get introduced.
Even longer-term is the free movement of people. Right now, there is a relatively limited talent pool within eCommerce. It is growing rapidly, but at the moment, the best-quality candidates can move freely throughout the EU. For eCommerce companies, they’re able to get the best talent across Europe but if free movement of people changes, that could have significant implications.
Q: Another big story is the launch of AmazonFresh in the UK, which has just expanded from 69 postcodes to 128 postcodes in London. What are your thoughts on Amazon’s overall presence in Europe and AmazonFresh in the UK specifically?
One thing that’s absolutely clear is that Amazon has signaled a very clear commitment to driving their food and consumables market globally. You just need to look at what they’ve been doing over the last few years: the launch of Pantry and Fresh in the UK and US, the increasing importance of the Subscribe and Save model as a way of locking in shopper loyalty, the Dash replenishment button in the US which will potentially come to the UK at some stage, as well as the recent launch of private label products on Amazon US.
But if you contrast the US market versus the UK, we are in very different positions. In some US cities, Amazon will have a grocery share of up to 40% in key cities like Seattle, whereas in the UK, Amazon is a very late entrant to the market and has a lot of catching up to do. That being said, Amazon has many potential advantages and strengths, and the biggest of those has got to be its delivery model.
This is one of the things that’s fundamentally set to change the UK market the most, as well as the wider European market with the recent launch of Prime Now in Paris, which offers same-day and even one-hour deliveries. That’s a massive challenge that Amazon is throwing out to the established eCommerce retailers over here and one that they’re going to find very hard to match as the eCommerce model is very expensive for them.
The other critical point relates to pricing. UK retailers over the last 3-4 years have been terrified by the entrance of the discounters, most notably Aldi and Lidl, and the way that they’ve continued to drive prices down. We’ve had a continued period of grocery price deflation in the UK and with Amazon entering the market and promising to be as competitive, if not more so than the grocery retailers, it’s just another challenge. Profitero did some analysis after AmazonFresh launched in the UK which showed that it was on average, 17% cheaper than the grocers.
However, if you look at the brands who sell their products on Amazon, they have very long-term established relationships with the major retailers, both from a trading point of view and obviously from a category management point of view, so they’ll be providing a lot of insight and working very closely with the likes of Asda, Sainsbury’s, Tesco and Morrison’s. Those relationships are still building slowly with Amazon.
Q: Can you share some high-level thoughts on how suppliers can best optimise the Amazon opportunity?
Amazon has huge areas of strength in areas of the digital shelf, such as enhanced product content (which Amazon calls A+ content), including the use of lifestyle shots, engaging videos and product matrices to make the customer experience that much better.
The most important thing for a brand on Amazon is to make yourself and your products as discoverable as possible, through optimising your product titles and descriptions. To do this, you need to understand the language that your shoppers are using when they’re searching for your products. Find out what those keywords are and then make sure that those words are being used within your titles and within your descriptions, because that, in turn, will actually improve your search performance and increase your page one results.
Then as I just mentioned, there’s more A+ or enhanced content. Where it’s relevant for your category, you can use these high-quality images and videos to encourage shoppers to engage with your brand. For example, if you’re a skin care brand, you can ask shoppers to tell you what kind of skin or specific requirements they have. By doing that, you can then up-sell to them, not just from one product, but to a range of products. That’s where this enhanced content can really drive your sales and your performance.
Another area that’s absolutely key and is becoming even more and more relevant for shoppers is product reviews, and not only for high-ticket items. A recent survey showed that 70% of shoppers are reading reviews when they’re shopping for their groceries. You need to understand the average number of reviews per product in your category, benchmark yourself against your competitors, and evaluate what kind of levels of ratings and reviews that your products are receiving. Now, you could say it’s a bit of a chicken and egg situation; which comes first? But one thing that’s absolutely certain. When we look at the best-selling SKUs on Amazon in our monthly FastMovers reports, they have a significantly higher number of reviews on average.
Then finally you can do all those good things, but if your product is not in stock, you’ll potentially lose the buy box as third-party sellers will get in ahead of you. It’s absolutely vital that you continue to monitor your availability on a regular basis.
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