When Amazon was testing its grocery delivery service in Seattle in 2008, Brook Hurst Stephens was among the first to sign up.
“I loved the service,” says Ms Hurst Stephens, who was taking care of five children and working long hours in wine sales at the time. “They would deliver about 4am, per my request, so when I got up at 4.30 my groceries would be at my door.”
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Since those early days, Amazon has navigated the hazards of delivering chilled and frozen food to slowly roll out its Fresh service to northern and southern California, New York and Philadelphia.
Its next move could be the UK. Analysts believe it is gearing up to launch in Britain, possibly as early as this year.
Amazon will not confirm whether Fresh will be crossing the Atlantic. But the prospect is striking fear into the hearts of British grocers, which are already engaged in a vicious price war.
“We should all have our eyes wide open on whether they are going to launch with Fresh [in the UK],” said Andy Clarke, chief executive of Asda, last week. “I am sure I am not on my own as a chief executive who is going to keep very close to how that business grows.”
In the US, Amazon Fresh delivers an estimated 20,000 frozen, perishable and ambient grocery products and also has partnerships with local merchants, such as delis and butchers.
Shares in Ocado, the online grocer seen as one of the most vulnerable to an Amazon assault, have fallen more than 20 per cent over the past month.
Amazon will not say how many customers it has signed up to Fresh in the US or reveal the sales the service has generated.
But Thom Blischok, US-based chief retail strategist at Strategy&, part of the PwC network, believes that as in Ms Hurst Stephens’s case, it has been well received in the limited markets in which it has been tested.
“It has been very successful with the people who use it. They are quite pleased with the quality, the delivered service and the selection,” he says.
One drawback, according to Stacey Widlitz, an analyst at SW Retail Advisors, has been its charging model.
An Amazon Fresh subscription costs $200 a year on top of the $99 fee for Amazon’s Prime service, which includes delivery benefits and TV and music streaming. For the $200, members receive free same day and early morning delivery on orders over $50.
“That is sticker shock for most people,” says Ms Widlitz. Consequently, Amazon has in the past experimented with the $99 Prime fee, plus a $7.99 charge for each delivery.
While some American markets, such as New York are peppered with online delivery services, including Fresh Direct — in which Wm Morrison took a stake — and Ahold-owned Peapod, the UK is much more densely served than many parts of the US.
The big four grocers — Tesco, J Sainsbury, Asda and most recently Morrison through its £200m deal with Ocado — have all invested heavily in creating compelling online delivery options.
Then there is Ocado itself. While it has had a volatile relationship with equity investors, only moving into annual profit last year, its service is praised by customers.
According to Stephen Mader, a vice-president of Kantar Retail, almost 1 per cent of US grocery sales are made online, compared with nearly 6 per cent in the UK.
The tough competition means that delivery charges can be as little as £1, even though Clive Black, analyst at Shore Capital, estimates the cost of fulfilling each online order at £10-£12.
But Amazon’s willingness to tolerate wafer thin margins could make it a dangerous competitor.
“The problem is they may be willing to run the food business at no profit at all,” says Jim Prevor, the US analyst who runs the Perishable Pundit website.
Amazon wants to increase convenience for its Prime members, and encourage them to buy other goods. Mr Prevor says this has some similarities to Walmart’s strategy in the late 1980s, when it introduced food to its general merchandise stores.
“It is a serious threat to all bricks and mortar retailers,” he says.
With the link to Amazon Prime, Mr Mader says it is customers using the service who will be most likely to try the new grocery offer.
“If you are looking at potentially competing against Amazon, it is very important to understand your exposure to existing Prime members,” he says.
But it is not just British grocers facing disruption. The nascent online grocery market in the US is being challenged itself, by outfits such as Instacart. It takes grocery orders and then enlists an army of personal shoppers to pick up the goods in the local Walmart or Target, and then deliver these to customers.
In an effort to stay ahead, Amazon is pioneering the Dash service to enable customers to replenish everyday household goods without visiting its website. Small WiFi enabled gadgets allow customers to reorder goods from Amazon Fresh by scanning the product’s barcode, or speaking into the device.
Mr Mader expects such “frictionless” shopping initiatives to become more common.
Underlining how fast the market moves on, Ms Hurst Stephens has not shopped with Amazon Fresh for some years.
“Now all of the grocery stores offer the service, so Amazon Fresh isn’t such a big deal,” she says.
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Ever since Procter & Gamble took a stake in Ocado in 2008 to help it understand how its customers might buy its products online, consumer goods companies have been monitoring the development of internet-only grocery retail, writes Andrea Felsted.
P&G no longer has a shareholding in Ocado, but the online channel remains crucial for big manufacturers, and the expansion of Amazon Fresh, could see it ratchet up even more.
According to the Institute of Grocery Distribution, the research charity, a third of British online grocery shoppers had bought from Amazon in the previous month. Purchases of health and beauty items, petcare and personal care were among the most popular.
One senior retailer says this stocking of staple products means Amazon has ready-made relationships with suppliers for the acceleration of Fresh.
The IGD also found that 35 per cent of British online grocery shoppers would purchase fresh food from Amazon if it were available.
Mike Dennis, analyst at Cantor Fitzgerald, says Amazon Fresh offers an alternative route to market for the big consumer goods companies, bypassing the might of the supermarkets.
“The big manufacturers have been wanting to go to the consumer for many years. Amazon Fresh just gives them a bigger channel, in terms of volume, with which to go direct,” he says.
Ben Miller, director of retail insight at the IGD, says that in the US, Amazon Fresh mainly stocks branded products. So there could be opportunities for manufacturers to stock their brands, or to develop goods under the Amazon Fresh label.
The danger for suppliers is that Amazon becomes such a mighty force in the grocery market that it is able to wield a disproportionate amount of power.
“Amazon could grow to become a big consolidated buyer, and get preferential [terms]”, says Jim Prevor, a US food analyst.
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