Ecommerce Guide

Are Australian Retailers Right To Fear Amazon?

With Amazon soon to arrive in Australia, domestic retailers have found themselves worrying even more following the announcement that the global ecommerce giant has plans to buy Whole Foods, the upmarket and popular US grocery chain that has 461 stores across the US, Canada and the UK. Just this Friday saw the online retailer agree to buy the chain in a deal said to be worth $13.7 billion.

Although there has been no official announcement that Amazon will open a range of Whole Foods stores in Australia, investors are already assuming the worst and predicting that the traditionally duopolistic nature of the Australian supermarket landscape will be disrupted. The retail sector in general has been under pressure across Australia thanks to the impending appearance of Amazon, with many electronics and department store retailers being particularly worried.

However, whilst the two main supermarket groups in Australia, Coles and Woolworths were not partially concerned with the forthcoming arrival of Amazon, the news that they have bought Whole Foods will increase their concern. This is in the face of increasing pressure from other newer entrants to the sector such as Aldi and Lidl.

Known as being primarily a pure online retailer, the future for Amazon lies in expanding its offering by acquisitions into grocery and omnichannel retailing.  “This acquisition reflects the challenges of pure-play online grocery,” says Citi analyst, Brian Raymond.

“Whole Foods provides Amazon with a (primarily leased) 460 retail store footprint across 42 US states, serving as distribution points and pick-up locations. Online grocery remains at around 2 per cent in the US despite 20 years of investment. In our view, this acquisition is not about access to product. Amazon has partnered with retailers such as Morrisons to solve range issues in the past.”

Whilst some have mooted a potential takeover of one of Australia’s current supermarket giants such as Woolworth or Coles, Citi says this is unlikely:

“After adjusting for Australia’s population, the Whole Foods acquisition is the equivalent of a 34 store, $1.5 billion turnover business in Australia. The store base is half the size of Ritchies IGA and a quarter of the size of Foodland SA. An acquisition of this scale is feasible if the geographical store footprint proved attractive.”

Struggling IGA supplier Metcash is an unlikely target, however. “Whole Foods is an acquisition of a retail footprint, rather than product or logistics capability. We expect Amazon would build or partner to solve these challenges and do not see Metcash as an acquisition target.”

However, whilst there may be some disruption to the Australian market thanks to Amazon, its penetration in grocery will be less disruptive than in other sectors thanks to Amazon traditionally taking a premium approach to grocery as well as Coles and Woolworths having uch as tight grip on the majority of the market.

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Scott Bretton

Scott Bretton

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