Amazon's UK grocery launch adds to Ocado doubt

A box from Amazon.com is pictured on the porch of a house in Golden, Colorado July 23, 2008. Amazon.com Inc has launched an Internet grocery service in Britain, it said on Thursday, joining a fast-growing but competitive market.

LONDON (Reuters) - U.S. online retailer Amazon has launched a grocery website in Britain, adding to uncertainty over how to value UK online grocery specialist Ocado as it gears up for an initial public offering.

Amazon said on Wednesday it would sell over 22,000 products from household brands such as Kraft, Pepsi and Procter & Gamble to niche products like ethnic and international foods.

The move steps up competition to supermarket groups Tesco, Wal-Mart's Asda and J Sainsbury, as well as Ocado, though Amazon will not offer the one to two-hour delivery slots provided by these operators.

RBS analyst Justin Scarborough said the launch would not pose an immediate threat to incumbents, but that Amazon was likely to improve its offer and that its arrival underscored the difficulties of forecasting Ocado's future performance.

"With Amazon joining the fray, with Waitrose Deliver able to sell inside the M25 from next July, let alone what plans say M&S or even Morrison has in this space over coming years, forecasting Ocado's sales and profits many years out (which you need to do in order to get anywhere near its IPO range) is fraught with danger and uncertainties," he said, referring to other possible market entrants.

Ocado said on Tuesday it was aiming for a valuation of over 1 billion pounds ($1.5 billion), which some analysts say is too high, in an initial public offering later this month.

Online sales of groceries are booming in Britain and, although they account for only a small percentage of the overall market, grocery specialists IGD forecast they will almost double to 7.2 billion pounds ($10.9 billion) by 2014.

Amazon, which already sells groceries online in the United States and recently launched in Germany, said an undisclosed number of its products will be provided by third-party members of its Amazon Marketplace.

The service will offer Amazon.co.uk's full range of delivery options, which include free delivery for an annual membership fee of 49 pounds, and next-day delivery.

But it will not offer the one or two-hour delivery time slots provided by Britain's biggest online grocers, and products from third parties will be sent separately, a spokesman said.

(Reporting by Mark Potter; Editing by Hans Peters and Erica Billingham)