In an unexpected move, UK grocery chain Morrisons—previously the smallest of the “big four” and struggling to compete—just made a big deal with Amazon to supply its fresh and frozen food. The deal runs through 2038.
Hundreds of Morrisons products—many of them made in-house— will soon be available to Amazon Prime Now and Amazon Pantry customers. “Today’s agreement is built on Morrisons unique strengths as a food maker,” said Morrisons CEO David Potts. “The combination of our fresh food expertise with Amazon’s online and logistics capabilities is compelling. This is a low risk and capital light wholesale supply arrangement that demonstrates the opportunity we have to become a broader business.”
Morrisons “can still hope to make a profit as a manufacturer and wholesaler on its Amazon lines, even if it is surrendering the retailer’s profit margin,” reports The Guardian. “It’s hard to argue with the market’s snap judgment on Monday’s strategic shuffles in the online grocery market.”
The UK supermarket shake-up was caused in part by the growth of discounters Aldi and Lidl.
“For Morrisons—and Amazon—the introduction of a few hundred lines into nascent Amazon Prime and Amazon Pantry services that have not yet reached critical mass is hardly a game-changer,” notes The Week. “But it has the potential to be hugely positive.”
The Daily Telegraph anticipates an aggressive strategy by Amazon. “Once [Amazon] has the measure of British grocery habits, could it jettison Morrisons and launch an all-out assault on the traditional food retailers?”
Amazon currently offers close to 4,000 non-fresh grocery lines and was expected to buy online fresh-food retailer Ocado to leapfrog into perishable goods. The e-tailer will keep its current deal with Ocado, which provides its own online shopping channel infrastructure.
Meanwhile, Sainsbury’s pending acquisition of Argos has pundits speculating on what that would look like.
“It is a bold move by Sainsbury’s, not least because it has never swallowed anything as big as Argos,” notes Marketing. “The acquisition would also take Sainsbury’s further out of its traditional food-retailing comfort zone.”
Sainsbury’s will likely pursue a differentiated strategy. “In spaces where the two brands touch, the Argos brand and range will be stretched more upmarket, but in the Argos store estate it will remain much the same as it is now,” notes Marketing. “Argos’ know-how and non-food range appears to be the elixir of longer life for Sainsbury’s. But will the Argos brand turn out to be just the container it currently comes in?”