Tesco Enters the Jungle: Supermarket chain takes on Amazon

September 3, 2020

2 min read

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What's going on here?

Tesco plans to start offering free grocery delivery from online orders in a move designed to compete directly with Amazon Fresh.

What does this mean?

The grocery store Tesco has announced that it will offer free delivery for members of its Clubcard Plus scheme when shopping online. This follows the announcement by Amazon in July 2020 that it would offer free grocery delivery in the UK for those with Amazon Prime. Tesco Clubcard membership is priced at £7.99 per month, equivalent to Amazon Prime.  But to further entice customers away from Amazon, Tesco offers more data for users of its mobile service and a 10% discount on two shops a month. Tesco’s online sales account for 16% of its revenues; this year, they expect that amount to hit £5.5bn. This demand has been driven by the coronavirus pandemic with delivery slots increasing from just over ½ m to 1.3m a week.

What's the big picture effect?

Amazon is everywhere, it is the world’s largest online marketplace, a cloud computing platform, a live streaming platform, an AI developer, a home services provider. You get the idea, this author counted 36 different services associated with the Amazon brand.  Its owner and founder Jeff Bezos is the world’s richest person and the company is the world’s most valuable brand. With all this in mind can a British grocery store compete with such a behemoth, even on home soil? For Amazon, the biggest challenge will be to dent consumer loyalty to their current supermarket. Surveys suggest UK shoppers have an “emotional bond” with their supermarket. This gives Tesco an advantage in keeping a larger market share in food deliveries. 

Going against the world’s biggest retail giant is a bold move, and there are doubts that it will pay off. The outgoing CEO of Tesco claimed the “plan was always to bring a whole bunch of benefits together.” This claim followed another announcement where the CEO admitted Tesco was “struggling to make a profit in online groceries and increasing delivery charges could be the only route to making money.” This is despite Tesco being the UK’s biggest food retailer. Industry analysts had predicted that following Amazon’s “nuclear” announcement traditional supermarkets would be wiped out if they tried to compete. 

So why has Tesco done this? Companies have always tried to retain customers through ties with loyalty schemes e.g. Avios and Nectar points. These have devalued in recent years as many businesses see them as a bonus but do not make them a core offering for their consumers. Tesco is attempting the opposite. Clubcard Plus is practically a necessity for anyone shopping at Tesco regularly with extra mobile data, discounts on shopping and savings on certain brands. Taking on Amazon is a huge challenge for any company, it has almost unlimited resources with which to compete. But the alternative is doing nothing, being outcompeted and then bankruptcy.  Perhaps it is still worth a fight on the way down, one never knows what could happen?

Report written by Michael Johnson

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