Trouble in e-commerce paradise? Government considers online sales tax as Amazon disrupts food retail

Thu 30 Jul 2020
Posted by: William Barns-Graham
Trade News

ecommerce boom

The coronavirus pandemic has had few winners but e-commerce sales – particularly for US giant Amazon – have boomed as a result of consumers staying away from the high street, partly prompted by the Covid-19 lockdown.

Amazon is looking to build on this success by targeting the UK’s food retail market, offering free deliveries on its ‘Amazon Fresh’ service for Prime users.

However, now Chancellor Rishi Sunak is considering an online sales tax in a bid to encourage shoppers to return to bricks-and-mortar shopping. How will such a move affect the seemingly unstoppable rise of e-commerce?

Boom time

Research from Edge Retail Insight shows coronavirus is expected to have added £5.3bn to the UK’s ecommerce sector by the end of the year, following a 19% annual increase. The report suggests Amazon will take the lion’s share, seeing an extra £2bn in sales in the UK this year.

The UK’s supermarkets have also benefitted, seeing a 3.3% increase in forecast sales for the year compared to the pre-pandemic prediction of -0.8%. Tesco is expected to bring in an additional £1.7bn in sales in 2020.

Amazon vs supermarkets

However, supermarkets now face a significant online challenge from Amazon which is removing the additional monthly fee Prime users had to pay to use its Amazon Fresh service for groceries.

The e-commerce giant also said this week that it will expand this service to the whole of the UK, having previously only served London and the south east.

The FT reports that Tesco, Sainsbury and Ocado shares fell up to 1% on Tuesday following the announcement, with new Waitrose boss James Bailey telling the Times the move was “very disruptive”.

Ashley Cooke, an Amazon expert at Clickthrough Marketing, told the Daily Update today (29 July) that Amazon could “change the grocery shopping landscape”, particularly should a second wave of the coronavirus spread.

Logistical challenges

However, as a new entry to this field, the move is not without its challenges.

“The challenge for Amazon here is that how quickly they can get fresh food from their fulfilment centres to the customer,” he said.

“Their competitors have been doing this for years and have systems and processes designed specifically to deal with these issues. Amazon may find themselves having a few teething problems when expanding their grocery offering”.

John Newton, a marketing director at Clickthrough, told the Update that Amazon could “do an Ocado” and partner up with a UK supermarket or “buy their way in” through either acquisitions or a “hiring spree of senior retail talent”.

Online sales tax

The government could deflate the industry’s bottom line by introducing an online sales tax.

The FT reports that Sunak is looking to introduce the tax in a bid to return shoppers to the high street.

Cooke told the Update that the idea of the tax was “risky” as the added cost will in most cases be passed onto the customer, further denting consumer confidence at a critical time in the UK’s economic recovery.