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Amazon ( AMZN ) opened first store outside US in UK in 2021

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Said this week it would close all Amazon Fresh stores in

UK

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To focus on online delivery

By James Davey

LONDON, Sept 25 (Reuters) - When Amazon opened

its first grocery store outside the United States in 2021, its

choice of a site in west London for a cashier-free store was

seen as the start of a major assault on Britain's $290 billion

food market.

That store closed in 2023 and this week the group said it

planned to shut its remaining 19 Amazon Fresh stores - a failure

that highlights the brutal economics of UK food retail, and how

one of the most powerful retailers in the world may still be

feeling its way on how to compete globally in groceries.

Amazon ( AMZN ), which also runs Amazon Fresh stores in the United

States as well as the upmarket Whole Foods Market chain, never

confirmed UK store targets, but 2021 media reports suggested

plans for over 260 Fresh outlets by end-2024.

Last year, it also dropped Amazon Fresh delivery in five

cities but still serves over 100 UK towns and cities, including

London, Birmingham and Manchester. It also ended its own grocery

delivery service in Germany.

Amazon's ( AMZN ) announcement does not impact its more than 60

Amazon Fresh stores and more than a dozen Amazon Go stores in

the United States or its over 539 Whole Foods Markets locations

across the U.S. and Canada, the company said.

PLANS TO EXPAND ONLINE DELIVERY

Amazon ( AMZN ) insists grocery remains a key part of its UK

ambitions - its third biggest market overall after the U.S. and

Germany.

It said on Tuesday it plans to expand UK online delivery of

everyday essentials and fresh groceries through its main

Amazon.co.uk site, the Amazon Fresh site, and partnerships with

supermarkets Morrisons, the Co-op, Iceland, and rapid delivery

firm Gopuff, where orders are placed via Amazon's ( AMZN ) site but

delivered by the retailers.

Amazon ( AMZN ) plans next year to introduce perishable groceries on

Amazon.co.uk with same-day delivery, a service it recently

launched in the United States. It will also convert five Amazon

Fresh locations to the Whole Foods Market format, giving it 12

stores by the end of 2026.

But after over 15 years selling groceries, analysts estimate

Amazon's ( AMZN ) UK market share remains below 1%, despite its stock

market value being over 60 times that of industry leader Tesco ( TSCDF )

.

Amazon ( AMZN ) does not publish financial results for UK grocery.

According to Reuters interviews with former employees, rival

executives, consultants, analysts and academics, Amazon ( AMZN )

misjudged the challenge of adapting its global retail model to

the nuances of UK food retailing, where 14 household names fight

for margins under 5%.

One former UK grocery retail CEO, who declined to be named,

said building a mass food retail operation in Britain required a

very different skill set from Amazon's ( AMZN ) general merchandise

expertise, such as specialist logistics and systems.

"It's a volume game, building scale is expensive, and the

market is intensely competitive," he said.

German discounters Aldi and Lidl took decades to turn

sizeable profits in Britain, while online supermarket Ocado ( OCDGF )

is barely profitable 25 years after its founding. And

U.S. retail giant Walmart ( WMT ) bought Asda in 1999, but sold

it in 2020 having failed to realise its UK ambitions.

The market is dominated by Tesco ( TSCDF ), with a market share of

28.4%, according to Worldpanel data, ahead of Sainsbury's ( JSNSF )

on 15.1%. Aldi and Lidl have built a combined 18.9%.

Amazon ( AMZN ) may have also misjudged British shoppers.

It launched stores during a cost of living crisis, pushing

checkout-free technology as a differentiator when consumers were

focused on saving money.

STRAINED RELATIONSHIPS WITH SUPPLIERS

Amazon's ( AMZN ) relationship with suppliers is another area where

it has struggled. Consultants who have worked with Amazon ( AMZN )

suppliers say that, unlike other retailers, it doesn't make full

checks when goods arrive, instead relying on automated product

recognition.

David Sables, CEO of Sentinel Management Consultants, which

advises suppliers in their dealings with supermarkets, said that

has led to a disproportionately high number of supplier

disagreements with Amazon ( AMZN ) over the quantity of goods received,

leading to delayed or incomplete payments.

Amazon ( AMZN ) is being investigated by the industry regulator over

alleged supplier payment delays, and has been ranked Britain's

worst-performing grocer for compliance with a code of practice

since 2022.

Amazon ( AMZN ) said it takes the industry code seriously and plans

to demonstrate its ongoing compliance.

GROWTH OPPORTUNITIES IN ONLINE DELIVERY

Amazon ( AMZN ) said on Tuesday it was closing Amazon Fresh stores in

Britain because of "the very substantial growth opportunities in

online delivery".

Martin Heubel, a former senior food category manager at

Amazon ( AMZN ), said the company's online tie-ups with supermarkets were

more profitable, earning commission without bearing the costs of

fulfilment.

Amazon ( AMZN ) cited a report from PwC's Strategy& that by 2030,

Britons would conduct over 25% of their food spending online.

But that looks optimistic.

Online's share of Britain's total grocery market peaked at

about 15% during the COVID pandemic and was 13.4% in September,

according to market researcher NielsenIQ.

"As 2025 comes to a close to reach 25% by 2030 would require

something currently unforeseeable to happen," said Clive Black,

head of consumer research at investment group Shore Capital.

A decade ago, Amazon's ( AMZN ) push into UK grocery was the hot

topic among industry executives.

"Now in terms of grocery, Amazon ( AMZN ) is very rarely mentioned as

a serious competitor," said Black.