Close this search box.

#AZMO – thoughts and observations on the Amazon Morrisons grocery deal

This is an archived article - we have removed images and other assets but have left the text unchanged for your reference

Our newsfeeds have been abuzz in the last 24 hours with commentary on the Amazon Morrisons deal, in which Morrisons will provide food to Amazon for the Amazon Pantry service. This is Amazon’s first extension of the service beyond hard goods (which are in effect not that different from its existing products in terms of handling and storage) into fresh produce. Even though the deal is for a limited number of products, it’s been seen as a sign of intent, a shot across the bows of Tesco and Ocado, and sent commentators into hyperbolic prognostications. Not wishing to pass on the punditry, we asked the editorial team at Etail Towers for their thoughts, observations and questions.

We have thoughts from, and our mobile and research teams.

Ian Jindal, editor-in-chief

“Amazon likes to challenge and disrupt, and often does this with a ratio of 10% substance to 90% PR. This could be a case of an incremental step being over-hyped in order to shake the tree of ideas and generate more interest. A simple search on “amazon morrisons” yields 8 pages of national media coverage…

The deal has made me wonder:

“Common carrier”

Competition thrives when all players have access to a ‘common carrier’. This gives capability to all, and no advantage to the mighty. In the past this has been a nationalised activity (eg the road network, British Rail, the Post Office, British Telecom – giving access to all). Ironically, the rail system’s nationalisation saw the end of competing, overlapping, sub-optimal private railways which gave us the oddity of London’s array of termini. Amazon has been forging ahead with private funding to create, cajole and shape an industry-defining logistics operation, but we now enter a period of competition to create grocer-optimised delivery: half hour slots, time-sensitive products that rot, thaw and bruise, overlapping small van routes and limits, 100-item basket collation, customer refusals… Ocado has tried, Tesco is succeeding and now we see Amazon building a third network… I smell blood and consolidation, and a lot of diesel particulates being churned into our towns”

Brand value and purpose

Morrison’s play is in reality a wholesale supply deal (Waitrose and Ocado, anyone?). There’s limited risk for Morrisons, although it’s dubious whether their food quality or margin is sufficient for this to build a business for them… They’re neither the Duchy of Cornwall nor Kellogs (quality or global recognition, respectively). The danger for Morrisons is that customer may simply realise that there’s no point to their existence, other than having a shed full of food in a convenient location. If you take away the branded products (which Amazon will in time source directly) then Morrison’s contribution may simply be that they were the first to throw in the towel. This move does not show Morrisons to have a strategy nor a brighter future, just simply that it’s a business looking to others for its salvation and purpose.


Amazon is able to cover millions of products where the cost of goods sold is carried by the marketplace seller. In online grocery there are two ongoing battles: getting customers to trial and test new products (rather than just hitting “repeat order”), and maintaining margin (since customers like to order heavy items (20 litres of mineral water) and bulky items (cat litter, toilet role and bumper packs of cereals). Amazon will need to find new ways to maintain margin, while getting into a service line where delivery demands are higher, returns are significant (often refusals at the point of delivery) and customers’ tolerance of mispicks is non-existent.

This deal validates the Argos-Sainsbury’s tie up. If Amazon’s logistics, stock range and customer penetration can encompass food, and 30 minute slots, higher returns and wastage, plus lower margins, then the only missing part is stores. A grocer can trade the challenges of online since they consider the ‘whole wallet’ of the customer, online and off. As the Amazon offer extends then stores will become a vital part of the mix – whether dark stores for picking, stores for collecting, stores to trial, test and experience and stores for reselling returns. Chilled lockers alone may not suffice.

In short, this validates the ‘multichannel’ view of the world – stores, online, brands and operations working together. For Amazon there’s no real downside, either to trialling this or to failure. For Morrisons it’s a more existential question: what’s the purpose of Morrisons now? What’s their strategy? The chilling question is whether – were Morrisons to close and another supermarket pick up their stores overnight – would their customer care? These are the fundamental questions for retailers – purpose, proposition, strategy – that Amazon brings into sharp and painful relief.”

Chloe Rigby, editor of

If the Amazon and Morrisons tie-up is to go well, there are three key parties that it has to work for: Amazon, Morrisons and the consumer. For Amazon, this is another step towards the customer-centricity that it aims to achieve. Morrisons will be another choice on its website that shoppers can choose or not choose: the important thing for Amazon is that it can now offer the choice of a broad range of groceries, rather than those specific products stocked by the brands that it also works with.

For the customer, this seems to be a win-win. Now they can buy groceries through Amazon, or through Morrisons, or wherever they happen to be at any given moment in time. But there’s a limit to the number of pints of milk they will need and as reasons for shoppers to visit a store diminish, will Morrisons lose out on the traffic to the store, or will they overall win through increased sales? The logical outcome for Morrisons seems to be that in time it won’t need so many shops – but if store numbers diminish, will the customer still be a winner?

Martin Shaw, head of research:

UK supermarkets can’t catch a break. There’s a deflationary price war, discounters, a need to deliver-to-a-time-slot, deliver-to-a-collection-locker, and they need to innovate and emulate in all these areas just to retain market share. And now they’re finally required to compete directly with ecommerce behemoth Amazon. It all seems rather grim, especially for Ocado whose share price was down over 7% on the announcement. Existing retailers, however, have existing customer bases, loyalty programmes, supply chains and, above all, physical estate that gives them a competitive advantage.

Amazon’s move will inevitably win it some market share but the battle will be for consumer convenience. Should Amazon’s mooted drones offer an emergency delivery of morning coffee within 15 minutes, supermarkets beware! Customers will flock to the service which gives them their goods faster, in nominated time slots, at a lower price.

Fulfilment is the battleground and Top500 research shows that over the 12 months to November the fraction of the UK’s largest 100 retailers offering Sunday and nominated-time delivery doubled. There’s an appetite for innovation in the UK retail sector and if grocers here can’t out-innovate Amazon, then we can expect the global grocery landscape to look very different in the coming decades.

Paul Skeldon, mobile editor:

When I was in Lidl this weekend (it was the butler’s day off) I overheard a fellow shopper on his phone say “Can I call you back, I am just in Waitrose…” and herein lies where Amazon’s tie up with Morrisons may run into trouble.

The deal is really a wholesale one whereby Morrisons will provide the food to Amazon. How it will be branded I don’t know, but food snobbery may see people not using Amazon for groceries as it may be cheaper, but they will be getting Morrisons goods: can price alone be enough to bring Ocado and Tesco shoppers to essentially shop at Morrisons?

The counter argument to this snobbery angle is that going from pretty much 0 to 60 in e-commerce could see shoppers abandon Morrisons’ physical stores – something it very much doesn’t need right now. It’s happened before: when Waitrose first partnered with Ocado, footfall plummeted and the store has been working hard to get it back. Sainsbury’s had a similar issue. The saving grace with Amazon-Morrisons is that it’s a wholesale deal, so not exactly aimed at getting people to shop online at Morrisons, more to use Amazon for its groceries – and to get more people to sign up to Amazon Prime (see below) – but it could drive people to stay away from all supermarkets if a success…

However, the deal with Amzon could actually counter this for Morrisons and give it an advantage. While the deal is very much focussed on Amazon using Morrisons as a food supplier, it isn’t beyond the realms of possibility that Morrisons can also see Amazon click and collect at its stores, and the use of Morrisons’ footprint for Amazon pop-ups or more. I would like to think that we will see some sort of store-online-mobile hybrid 21st century super-omni-store experience come out of this at my local Morrisons at some point down the line.

Which brings us to mobile. This could be the start of a much better and wider mobile strategy for Morrisons. Morrisons has an app – a very good one – and quite a nice online presence, but its geographically limited in terms of where it covers delivery-wise. A tie up with Amazon would doubtless see Morrisons goods available to more shoppers via mobile and could well help – if there is any sort of reciprocal deal planned – Morrisons add much of Amazon’s amazing mobile features to its fledgling m-commerce functionality.

So what’s in it for Amazon? Well it’s all about Prime, I think. Amazon Prime members spend more on average: research by ParcelHero shows that shows Amazon Prime members shop 50% more frequently with the company than non-members and spend an average of £1,000 a year, as opposed to £450 a year for non-members. The lure of cheap groceries with free same day delivery could well be the extra pull needed to get more people to sign up to Amazon Prime.

And Amazon is also offering exclusive deals for Prime Members on its Pantry service; so it really is a joined up approach.

Sean Fleming, editor of eDelivery

When I first read that Morrison’s had signed a 25 year deal with Ocado I was certain it was a typo. But no, Morrison’s is blocked from developing its own online grocery service by the terms of a 25 year contract with Ocado. So perhaps it’s unsurprising the Bradford-born supermarket wants to explore other online avenues.

Setting aside the drop in Ocado’s shareprice, anything that shakes long term investment strategies is going to be a worry. But Morrison’s isn’t the only game in town, even if it is trying to scale down its dependence on Ocado.

What might this deal mean to Sainsbury’s and its attempts to get its hands on Argos’s delivery capabilities? With Amazon entering the fray, things are likely to get tougher than ever for the big supermarkets, so is Sainsbury’s entering now-or-never territory? If it misses out on Argos, can it find a credible delivery proposition to truly go head-to-head with the big players?

And how will Asda and Tesco respond? The former’s toYou service requires fully utilised assets across its network, so anything that might draw business (and busy-ness) away will be a concern. It’s unlikely the rest of the sector will sit on its collective hands watching.

As some of my esteemed colleagues have already pointed out, there’s nothing new about Amazon acting like a disruptor; it’s something I have written about repeatedly over on eDelivery and elsewhere. But for many UK grocery shoppers there would be something very new about switching allegiance from Tesco or even Waitrose (heaven forefend) in exchange for Morrison’s goods delivered by Amazon.

Price and convenience will win many customers over, but will it be enough to keep them – only if the doorstep experience is at least on a par with that which they are already accustomed to. And that’s something that requires – among other things – consistency.

Consistency, as Ian alludes to in this article, is hugely important. As will be collaboration.

If the retail delivery world continues to fragment its offerings and its approaches to solving problems, customers will ultimately lose out.

Whether Amazon will unify delivery in the UK to the benefit of everyone is – at this moment – anyone’s guess. If it does, the Morrison’s tie-in will be one of the milestones leading to that destination. If not, maybe this will become little more than an interesting footnote.

What do you think?

What do you think? We have collected some of the thoughts on the twinternet in this round-up piece, but we’d like your thoughts – either in the comments here or via @etail.


Read More

Register for Newsletter

Group 4 Copy 3Created with Sketch.

Receive 3 newsletters per week

Group 3Created with Sketch.

Gain access to all Top500 research

Group 4Created with Sketch.

Personalise your experience on