Amazon Fresh Not Likely to Affect Woolies & Coles

The analysis suggests that traditional bricks-and-mortar and online grocery players will not be as severely affected by Amazon as operators in other retailing industries.

“While Amazon Fresh will offer competitive pricing and use the latest technology, the effect on the major supermarket players will likely be mild compared with disruptions in other retailing industries, particularly in the short to medium term,” says senior industry analyst at IBISWorld, Nathan Cloutman. 

The supermarkets and grocery stores industry is expected to generate revenue of $108 billion in 2017-18. In the industry, online shopping represents an estimated 2.8% of revenue, at $3 billion. While the online grocery sales industry is growing rapidly, it is expected to only account for 4.3% of total supermarket and grocery sales in 2022-23. 

“Online shopping penetration is much lower in Australia than in other countries where Amazon has launched its grocery service. In the United States and the United Kingdom, online grocery sales account for approximately 6% of total sales. Australia’s abundance of bricks-and-mortar supermarkets allows most consumers to purchase groceries quickly and easily in-store,” explains Cloutman.

“Coles and Woolworths have the advantage of having many physical locations close to consumers. In addition, the major supermarkets already have the scale and logistical strength to expand their online capabilities through options such as click-and-collect.”

Coles and Woolworths are increasingly expanding their online presence in anticipation of Amazon’s arrival. For example, Coles opened its first online-only dark store in inner-city Melbourne in June 2016 and IBISWorld expects more of these to be opened over the next five years.

Coles and Woolworths currently dominates the online grocery sales industry in Australia. Revenue generated through online grocery sales is projected to total $1.3 billion for Woolworths and $1.1 billion for Coles in 2017-18. While ALDI does not sell groceries online from its website, its move to sell groceries online in China through the Tmall platform earlier this year indicates that the company recognises the growth potential in online grocery sales. The company also sells wine and non-food lines online through its website in a range of countries, such as the United Kingdom and Germany.    

Amazon will have to overcome the established logistics and delivery networks operated by Wesfarmers and Woolworths, coupled with the already low prices offered by ALDI, to significantly penetrate the Australian grocery market. In addition, consumers often prefer to inspect fresh produce before purchasing, which benefits the major supermarkets. Coles and Woolworths are also enhancing the shopping experience for consumers through add-ons such as in-store tastings and cooking demonstrations.      

“One year on from starting in the fiercely competitive British grocery sector, Amazon has yet to make its mark. This is another positive sign for the major supermarkets in Australia. However, Amazon could use their large purchasing power to acquire a grocery chain and establish an offline presence in Australia, similar to what they did with Whole Foods Market in the United States,” says Cloutman.

Amazon Fresh is unlikely to launch in the New Zealand market in the near future, due to the relatively small size of the New Zealand industry compared with Australia. The supermarkets, grocery stores and convenience stores in New Zealand is expected to total NZD $18.7 billion, which is equivalent to approximately 17% of the Australian industry when converted to Australian dollars. 

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