Amazon is dipping its toe further into online grocery. It launched Amazon Pantry in Germany in early October and followed it with a launch in the UK a month later.

Lidl responded in Germany with its own version, called the Lidl Vorratsbox.

In the US Amazon has a trial full line grocery offer running in a few major cities. (It started in Seattle, moved down the west coast to LA and San Francisco and then across to the east with some parts of New York and Philadelphia). It is a very long way from being a national service and is still experimental. It is also restricted to the US.

Amazon Pantry is a first step towards Amazon Fresh, but it is a long way from being a full grocery offer. Pantry is just the easy part – ambient temperature groceries.

Pantry is only available to Amazon prime members – who pay an annual fee of €49. The idea is that customers can buy in boxes that can take up to 20kg. The delivery charge is €4.99 for the first box (£2.99 in the UK) and in the UK there is a lower charge of £0.99 for each subsequent one. The Germany site is oddly quiet about whether there is a lower charge of extra boxes.

Lidl’s service is very similar and the delivery cost is the same. It’s a logical development for Lidl which has been slowly extending its online offer over the last couple of years.

But there are two major differences with the Amazon deal:

1. You don’t have to pay any up-front membership fee.

2. The Amazon offer is primarily branded and the Lidl offer is primarily private label from its stores.

Lidl’s offer is the same as in its stores and so is known and understood by its customers. Amazon does not have stores and so at this stage has no option but to restrict its offer to branded goods which are more expensive.

Neither Lidl nor Aldi has yet gone as far as to develop a full online grocery offer and we are not sure that they should do so. But for Lidl, the Vorratsbox is an important test for the scale of demand and the viability of such an offer, including whether it could be serviced from store or whether it would require standalone warehouses to service.

Nor is it clear how customers would respond to an online offer with such a limited range. For example, Lidl’s grocery offer is around 1,500 lines. A grocery superstore would have upwards of 30,000. In Germany the online leader in a very underdeveloped online market, is Rewe whose offer is in 70 cities at the moment and whose product offer is probably more like 15,000 skus.

In the UK all the majors have a full grocery online offer and there is Waitrose/Ocado as well. So the challenge for Amazon is far greater than in Germany. In fact it is virtually at the opposite extreme. So far, at any rate, Lidl has not launched a Pantry type business or, indeed, any online offer there.

Ambient temperature groceries are the easy part. They may be much higher volume than a non-food online retailer has to cope with, but they do not present the control problems of fresh, chilled and frozen goods. To develop warehousing and picking systems for a full grocery offer is very expensive. After all it took Ocado over a decade to get to profitability in the UK and progress (in terms of profits) is being held back because of the need to open new warehouses to extend its coverage.

Lidl could start a full online offer by picking from store, but Amazon would have to set up the warehousing and distribution first. It is clearly moving in that direction, but to commit itself to a full grocery offer would require major investment and the pay back would be very slow.

These issues are discussed as part of our report on Supermarkets – Europe, November 2015. It is hard to see Amazon making much impact in the UK. It could appeal to the sort of shoppers that wants to buy ambient groceries online, but fresh foods more frequently and in-store. Whether that is enough for it to develop a profitable niche business remains to be seen.

For Aldi (if it ever develops in online and at the moment it is watching what happens to Lidl, although it is said to have plans in the UK) and Lidl, their limited range would be a significant disadvantage and neither has yet even experimented in the UK.

Germany is another matter. Mintel’s consumer research certainly indicates that there is an appetite for an online offer, but the Germans are very price conscious and any online offer would have to be competitive. Lidl as a known and respected retailer there should be well placed to succeed, even with an ambient only offer.

For Amazon, if it can’t make Pantry work in Germany, then its chances elsewhere must be very limited indeed.