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Reflection on Amazon Strategy to enter the UK Grocery

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ASSIGNMENT

Question : Discuss Amazon’s strategy if it was to enter the UK grocery market and the possible outcomes, positive and negative for the existing main companies such as; Tesco, ASDA and Sainsbury as well as consumers.

Executive Summary

The report is about Amazon Inc and the progression of the company into Amazon Fresh business into UK grocery domain. The report evaluates the strategy pros and cons. Further inferences are drawn based on the SWOT, PESTLE, Ansof and Porters evaluation frameworks. Inferences are provided to competitors as well customers. Recommendations and conclusions are provided based on the strategic scenario of the Company and in the context of entry into the UK domain.

Introduction:

Amazon Inc is the United States of America’s MNC that focuses on E-commerce, Cloud computing as well as Artificial intelligence domains(Berg& Knights,2019). It is the largest ecommerce company in the world and in United States of America it is the second largest employer. As per the annual reports of Amazon ending 4th Quarter of 2018, the net revenues of the company are more than 70 billion dollars. By way of revenues the company is the second largest internet company in the world. Amazon Surpassed Wal-Mart as the most valuable retailer in terms of market capitalization. As of now Amazon is now present in Asia, Europe, South America, North America and Oceania regions.

Amazon entered into UK market since 1998.  As recent as in 2016,f Amazon announced its strategy of Amazon Fresh to enter into the Grocery market in United Kingdom. In this context the following part of the discussion presents with detailed evaluation of the strategy of Amazon to enter into UK grocery market it’s positive and negative implications to Amazon as well as to the conventional competitors of United Kingdom viz., Tesco, Asda. Sainbury’s and Morrisons. Further the write-up is presented with the market study and analysis with reference to Swot, PESTEL, Ansof, Porters 5, Porters Generic strategies. As a whole the report attempts to present with critical analysis of the Amazon decision to enter into the United Kingdom market.

UK entry – Evaluation of the strategy

Amazon Fresh is mainly focussed on the food and Grocery products in United Kingdom. The range of grocery items in UK as well some Amazon store front are being supplied by Amazon Fresh to its customers. In most of the cases the delivery is on the same time, and in some instances based on the time of ordering and the availability of the trucks, delivery can happen on the next day. In any case, Amazon Fresh is optimistically floated by Amazon Inc into UK market. UK grocery market is the third largest in the world, Only after South Korea and Japan.

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About 6.9% of the Global grocery market is from United Kingdom, It is only after South Korea with 16.6% and Japan 7.25%.  Further about 29% of the UK shoppers will browse online products before taking up a decision to purchase them in physical stores. Hence E-commerce do have strategic role in Grocery market in the country. Also Grocery market growth rate in UK is quite encouraging and there are chances for the grocery market to reach about 68% by 2020 as per the estimations of IGD. Hence strategically it is a commendable step of Amazon Fresh to enter into the grocery markets of United Kingdom. It is more likely that Amazon can grab about 3% of the total UK grocery market by 2020.

Literature Review and Discussion:

Kirby-Hawkins et al (2018) indicated that the grocery market in United Kingdom is fast moving to adapt technology innovations and the e-commerce can take up the business in the coming years drastically.  Kirby-Hawkins (2018) studied the relevance and implications of the socio-economic factors on the current scenario of e-commerce in the country and provided with insights that emphasizes the need for innovation and higher service quality for companies to sustain in the business. Walton et al(2017) also worked on to study the power of competition and make inferences on the need for new products to face the competition, to face the changing business environments as well as the technical obsolesce and the shorter product life cycles. These scenarios will pave way for service innovations like short term deliveries of Amazon fresh.

Monios (2015) emphasized the need for intermodal logistics for retail industry in UK groceries. Amazon fresh like companies can take advantage of the innovation in the logistics solutions for e-grocery solutions in UK (Saskia et al., 2016). Quick delivery at cost effective channels and without compromising the food and product quality makes up the key element of the Amazon Fresh new business solutions. Zissis et al(2018) proposed new strategies for collaboration for business promotion specifically in the service and product delivery of the groceries from online pathways. These strategies are more likely to provide innovative opportunities for business promotion for companies like Amazon Fresh. Javalgi(2018) indicated that the Amazon’s 4 Star is already proved of its potential in the grocery segment and it can have everything set to do revolutionary changes in the Retail industry.

Bhatnagar (2018), emphasized the strategic capabilities of Amazon and its potential to take up risk in entering new markets and products with takeover of Pillspack in United states. Kumar & Bhardwaj(2018), through their critical insights on the recent strategies of Amazon, informed that the two giants of Retail Amazon and Walmart changed the rules of Retail business and they have the potential to drastically change the profile of industry anywhere on the globe. Javalgi (2018) presented strategic changes in the Tesco business promotion with an objective to take over Aldi and Lidl and alleged that the discount offers presented by Tesco have changed the profile of Tesco’s operations and contributed to its sustenance by increased customer loyalty.

Question - Breakdown: Literature Review : Usefulness of appropriate literature & references to provide the context & develop a framework for the assignment (SWOT, PESTEL, Ansof, Porters 5, Porters Generic)

Solution

SWOT,  PESTLE. Ansof, Porters 5, Porters Generic

PESTLE :

Political

Political conditions of UK are most stable and any company can take the risk of investment for long term and short term strategic planning.

Economic Trends:

Economy of the country is following a growing GDP trend. Highest GDP growth rate of 3.8% is recorded in the year 2000.  As of now in the recent years, apart from industrial sectors there is considerable growth noticed in the services sector in the company.  The growth is occurring in almost all regions of the country.

Social factors

Working population from 16 to 60 years makes up the large segment in the country. Most of the people in United Kingdom are from this category. Standard of living and income levels in the country are the world best. The health care and the level of education in the country is also quite good in the country.

Technology factors

People use technology excessively; the entire nation is covered with internet and telecommunications networks, which are facilitating the best usage of e-commerce technologies in the country.

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Legal

There are fair legal regulations like labour laws exist in the country along with other differentiation policies like zero discrimination, zero harassment etc. Which are made to ensure better working place in the country.

Environmental

UK is compliant with the environmental regulations to preserve ecological balance, Protection of the environmental standards, bio-diversity and protection of the natural resources make up the environmental strategies of UK.

Considering all these factors and regulations, it can be said that the  Amazon fresh has taken a right decision to take up the risk in entering to UK market in Groceries.

SWOT

Strength: Amazon’s extensive experience and capabilities. As well the company’s great infrastructure and investment potential.

Weaknesses: Already there are several established leaders in the market, and the competition is not going to be a cakewalk.

Opportunities: There is scope for Amazon to establish new service modules like same day deliveries and one hour deliveries etc. Both the commodity coverage and service characteristics can provide Amazon ample opportunity to sustain in business. Also possible to have new trade opportunities.

Threats:

Competition, too much overhead costing for the employees and financial crisis are the threats for any organization working in UK

Porters 5 forces

Porters five Forces.jpg

There is high threat of new entrants as the market is quite open and the framework for new business is flexible in UK. There is considerable threat for the substitution of new channels as well the degree of rivalry is high for this business. The bargaining power of buyers is too high in the market; however the bargaining power of suppliers is medium as there is much to the buyers than the suppliers in this market framework.

Porter’s Generic

There is chance of cost leadership by Amazon Fresh atleast in few products. As the company has good expertise and experience in the grocery market already.
Differentiation leadership is also possible by Amazon Fresh in variety of products as it is possible to have good broad focus on variety of products in the company.

Ansof Matrix

The possible business opportunities for the company include market penetration into the existing markets and segments by employing new cost leadership and service strategies. Further there is scope for market development interms of spreading into the new market domains and developing the business and also there is considerable scope for the business diversification within the Amazon Fresh domain of operations. However it is an existing service in the new market.

Question - Critical Thinking : Competence of analysis and critical evaluation of assessment of findings including Conclusions and Recommendations

Solution

Analysis – Competitor inferences

As a whole Amazon Fresh venture into UK grocery market for Amazon can be a right decision for Amazon Inc for more than one reasons.  Amazon cannot leave the high rate of expanding grocery market of United Kingdom.  Also for Amazon Fresh entering into the new market can develop new revenue channels and this inturn can develop necessary risk adaption to the company. Apart from this Amazon can diversify its products and contribute to the service innovation and thereby can add value to its own capabilities.  Though there is risk from existing business structure in the country like existing supermarkets can impact the entry of Amazon into the country. It is also possible that Amazon if fails in UK, the brand reputation will get impacted adversely. Also Amazon may not avail the benefits which the existing supermarkets are enjoying by way of economies of scales in the country.  There are barriers to high sunk costs for the company.

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Implications to competitors and consumers

Already the big 4 of the UK groceries Tesco, ADA, Sainsbury and Morrisons are under high pressure due to the discounts available on internet and Aldi/Lidl etc. They will be forced to get into price competition. Further the quality will become the criteria of distinguishing the services and to take up the lead position in the market. Loyalty programs and service innovation makes up another implication which the traditional companies will take up for standing in market for competition with Amazon Fresh. Positive benefits can be opportunities to make trade collaborations with Amazon Fresh on new ventures, negative implications can be loss of market share, more service demands from the market and complications in terms of the business price stresses.

It is possible that the entry of Amazon Fresh into the market will erode the supernormal profits of some of the companies being enjoyed at present in this domain. There is every chance that each of the competitors lose some of their market share significantly from the current market of United Kingdom. As of now some of the competitors are enjoying low average costing due to better demand to the products, but loss of market to Amazon Fresh, may make these companies loose its product business and may results in the mandatory price hike which may contribute to further loss of market share. Hence it is very vital for these competitors to sustain their distinction to stand in the market and keep up their advantages. Consumers now can avail the following benefits by the entry of Amazon Fresh into the market. Typical benefits of Amazon Fresh may include the following,

Lower prices – Due to competition and forced decrease in the overall prices of the commodities

More choice – Consumers can avail now more choice in selecting the right products.

Increases consumer surplus

Allocative efficiency in the market

Higher quality if firms try to differentiate/justify higher prices – Competition forces firms to adhere to quality and sacrifice some extent of profits.

Improved delivery times – Amazon fresh already announced one hour delivery times.

More dynamic efficiency/innovation

More offers/deals – Customer loyalty as become key criterion, more likely that customer can be offered with new offers and deals for business promotion.

Recommendations

Amazon Fresh strategically need to focus on its competitive advantages, as announced the service quality and delivery times are some of the aspects where it should able to prove its reliance and dependability(Zijm et al.,2015).

Customer loyalty is another advantage that the Amazon has when compared with other competitors in the market. Amazon should able to sustain the trust and loyalty to stand in the market.

Amazon Fresh is more likely to face barriers like predatory pricing(Kaplow,2018), sales maximization pricing as well increased advertising costing in the market. Amazon fresh need to remain well prepared to take up these challenges and alternative strategies and preparedness necessary by the firm to avoid loss of business and market shares.

Amazon fresh can consider collaborations on selective products within the grocery domain of operations. Further there is opportunity for the company to seek novel logistics and related collaboration with other established players in the market to keep up its penetration and sustenance into the new markets of the country with enhanced service delivery characteristics(Baskin et al.,2018).

Conclusion

As a whole considering the SWOT, PESTLE and internal capabilities of Amazon, the strategy of floating Amazon Fresh for groceries market in UK is a good decision. It has merits due to the fact that they offer some risk absorption capacity for Amazon as even if other markets of Amazon fail, revenues from Amazon Fresh may help the company to keep up its market. Alternatively if the Amazon Fresh offers an opportunity for Amazon to diversify its services into the new and best Grocery market of the world. Hence it is positive decision, however sustenance and growth will directly depend on Amazon capability to execute its competitive advantage by superior service quality and innovation. The market is ripe for Amazon to take over and to establish its legacy in E-commerce.

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