Germany’s grocery stores face a new rival that threatens to upend the already fiercely competitive market. Amazon Fresh officially made its debut in Europe’s largest economy on Thursday, offering same-day deliveries of fresh groceries in Berlin and neighboring Potsdam. And that's just the start.
“It will really shake the German grocery market once Amazon really gets up and going with selling groceries,” Josef Sanktjohanser, president of the German Retail Association, told Handelsbaltt.
Amazon Fresh’s debut in Germany has been a long-time coming. The online retail giant started delivering fresh groceries in the United States nine years ago and it launched the service in Britain last year. In Germany, just 1 percent of groceries are ordered online, but analysts see room for rapid growth.
“Fundamentally, the readiness of Germans to order groceries online is already very high,” Joachim Spill, a partner at the consulting firm EY, told Handelsblatt.
It’s clear that our goal is to make Amazon Fresh available for customers elsewhere. Florian Baumgartner, CEO, Amazon Germany
In a survey conducted in February and March, EY found that 10 million Germans have already ordered groceries online. In the major cities, 20 percent of residents order groceries online occasionally. A major hurdle to growth has been the lack of selection and geographic coverage for delivery.
“Up until now, the grocery segment had lacked a really convincing online selection with blanket coverage,” Mr. Spill said.
Amazon has the structure in place to overcome the challenge. It will offer a selection of 85,000 products, compared to about 12,000 in the average grocery store. And Amazon's partnership with DHL, Germany’s largest parcel service, offers the potential for nationwide coverage. There’s already a built-in demand with 10 percent of Germans visiting Amazon.de when they are looking for perishable groceries.
Amazon Fresh already has plans to expand further in Germany. There is speculation that it might open in Munich next. Florian Baumgartner, the head of Amazon Germany, declined to comment, but said “it’s clear that our goal is to make Amazon Fresh available for customers elsewhere.”
Amazon faces major challenges, above all because the German market does not offer big margins. Josef Sanktjohanser, President, German Retail Association
Even if there's room in the online segment, the German grocery market will still be a tough nut to crack even for Amazon. The market is crowded with grocery store chains that engage in tough competitive pricing, and customers have high expectations. Amazon says it's aware of the challenges.
“We are looking very specifically and methodically at how we can expand Amazon Fresh,” Mr. Baumgartner said. To avoid snafus, Amazon gradually increased its offering of perishable goods over several years before offering a small selection of fresh goods in Berlin and Munich in a test phase through its separate express service, Amazon Prime Now.
To make its selection more attractive to customers, Amazon Fresh is also entering into select partnerships with specialty companies. The supermarket Tegut, for example, will offer organic products. And Amazon is also partnering with local shops. In Berlin, the coffee roaster Sagers and the chocolate store Rausch will offer their products through Amazon Fresh.
“Many products are there that are hardly available online,” Mr. Baumgartner said.
But the big question is whether or not Germans will pay to have groceries delivered to their doorstep. In addition to Amazon Prime’s annual fee of €69, customers will have to pay €9.99 a month for Amazon Fresh’s services.
Mr. Sanktjohanser, the president of the German Retail Association, does not believe customers in Germany are ready to pay that much for delivery: “Amazon faces major challenges, above all because the German market does not offer big margins,” he said.
Florian Kolf leads a team of reporters covering the retail, consumer goods, luxury and fashion markets. To contact the author: [email protected]