Is Amazon the undoing of Tesco? Or is Tesco doing an Amazon?

Is Amazon the undoing of Tesco? Or is Tesco doing an Amazon? (FT)

  • Amazon has been trialling its grocery delivery service in the UK after its acquisition of Whole Foods in 2017 and the argument has consistently been made that a commitment by Amazon to the market would have a significant impact on UK supermarkets. However, The Sunday Times argues that Tesco’s model may be replicating that of Amazon.
  • Tesco’s development of its Amazon Prime style loyalty programme could see millions of customers take up its banking and mobile offerings. Increasing use of Pay+ and Clubcard could damage Amazon’s plans to enter the UK market.
  • Tesco Bank is used by 5.6m customers and its app has been downloaded by 1.2m people. Pay+ has seen increased usage as well.

Analysis & Comments

  • While we fully understand the thinking that Amazon is a potential threat to many retailing sectors, we have long memories & hence recall a number of situations when Amazon failed.
  • We were around when Amazon tried (& failed) to dominate all sorts of retailing categories in the UK including televisions and white goods.
  • Food retailing is tough, and perhaps the toughest aspect to crack is order picking and delivery. Ocado has invested heavily to automate the process and we are unconvinced that Amazon has the appetite for that level of investment in what is for them a small(ish) market.
  • By contrast, Tesco has a large market share (and its club card) to build off and under the (now not so new) CEO David Lewis they are getting back on track.
  • Interestingly, the FT story came out just before a Mintel report “Online shopping growth to slow?“ which talked about growth slowing and a lack of interest in online food shopping among key demographics.

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