David Prosser: Bet on Amazon to give the grocers a real fright

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The Independent Online

Outlook This could be fun. For some time, Tesco has been able to dominate the markets in which it operates, with competitors battling only for the No 2 positions. Now, in one of those markets at least, comes a potential rival that Tesco really might lose some sleep over.

Amazon's launch into the online groceries market – a sector where Tesco's share currently beats that of all its competitors combined – will be fascinating to watch. This is a company with the resources and the imagination to give Britain's biggest grocer a run for its money.

It may not make a splash straight away. There are significant drawbacks to Amazon's offer – no hourly delivery slots, different parts of each shop coming from different suppliers, and the lack of a shopping list facility on its website – and some quick comparisons suggest it may not be any cheaper than the traditional supermarkets.

What Amazon does have, however, is fantastic distribution, access to suppliers of all sorts of speciality items and the experience of dealing with 160 million customers worldwide.

In short, it is a threat to Tesco of an entirely different order to, say, Ocado, whose stock market flotation was announced earlier this week. Ocado, for example, has one large distribution centre, though it hopes to build another, while Amazon already has six.

What will also worry Tesco is the possibility of Amazon's launch into its core market eroding some of the success the British grocer has enjoyed in selling ever-greater quantities of non-food products. Electricals, books, music – all key areas for Tesco the days – are exactly the product ranges in which Amazon excels. It may end up stealing considerably more of this sort of business than its rival's weekly grocery orders.

The launch may also threaten the power that Britain's supermarkets have over their suppliers. There were some clear hints yesterday from product producers large and small that their support for Amazon's launch reflects some frustration about the way in which they have been treated by the grocery sector over the years.

It is easy to fall into the trap of assuming that because Amazon knows nothing about selling foodstuffs (at least in this country) it does not pose a threat to the established players. But in the online retail market, whether you're buying tomatoes or televisions, companies stand or fall on the quality of their technology and logistics. In that context, Amazon will be a formidable competitor.