At first sight, Morrisons new tie-up with internet giant Amazon looks like a great deal, enabling the Bradford-based grocer to penetrate Amazon’s London heartlands.
Morrisons has always appealed to canny shoppers but this week’s Kantar Worldpanel data shows that its newly launched premium line ‘The Best’ is going down very well with more affluent customers.
Kantar’s Fraser McKevitt calls it “the halo effect” as Morrisons’ can boast about its farm to fork production line, ensuring that it knows the provenance of far more of its produce than its rivals.
This is something that is likely to appeal to Amazon Prime customers, who fork out £79 a year for the privilege.
Just as middle class dinner party hosts like to boast that the wine their guests are drinking is an award winner from Aldi and Lidl for a fiver a bottle, Amazon’s London customers will also enjoy the bargains and the authenticity that Morrisons provides. During ‘Horsegate’, Morrisons came up smelling of roses as it is passionate about knowing exactly where its produce comes from.
For Morrisons this new deal with Amazon will broaden its offer and give it more ways to reach customers online, where it is still in the early stages of development.
However, analysts say there could be some drawbacks.
Bruno Monteyne at Bernstein said: “Amazon has control over pricing. The deal remains part of the wholesale agreement and Amazon are able to charge their own prices. Without being able to control pricing this puts a material risk on the Morrisons brand and the risk of Amazon undercutting Morrisons’ offer.”
This could be an issue for Morrisons. If Amazon charges less than Morrisons, Amazon Prime customers are more likely to use their app rather than go to a Morrisons store or buy online from Morrisons itself.
However there is another possible outcome – Amazon charges more than Morrisons. When Blackfriar did an Amazon Prime online shop before the Morrisons deal was announced, the surprising thing was how much more Amazon was charging than its rivals. Blackfriar was shocked to find that a bottle of Gordon’s Gin (please don’t make any assumptions about Blackfriar’s shopping habits based on this) was several pounds more expensive than Tesco, Sainsbury’s and Asda.
So we did another test yesterday to compare prices. The only two products we could quickly find on both websites were Morrisons Fig Rolls and Morrisons Vermouth Bianco. Both were exactly the same price – 40p for the fig rolls and £5.50 for the vermouth.
It would seem to be a sensible decision for Amazon to charge the same amount as Morrisons to avoid either side losing out if shoppers noticed the price difference. Mr Monteyne pointed out another potential hiccup could occur if Amazon messes up the deliveries: “Amazon is at a very early stage of developing online food retail and there is material risk that customers will blame Morrisons for any mistakes in execution.”
These are possible setbacks that Morrisons will have no control over. However this is a limited service focused solely on London and Hertfordshire and Amazon is very experienced at delivery.
Blackfriar has tried to pick holes in this latest tie-up, but it looks like canny Mr Potts might have done it again.
As analyst Clive Black at Shore Capital says, this looks like an innovative extension of Morrisons’ agreement with Amazon.
“This announcement further underscores the high level of entrepreneurship that CEO, David Potts CBE, and CFO Trevor Strain, are bringing on a progressive and sustained basis to Morrisons,” said Mr Black.
“A number of interesting trials have commenced that demonstrate a commendable skill in better utilising the group’s assets, supporting medium-term growth and doing so in a demonstrably capital light/high return manner.”