evokeAG. talks food. What is Amazon Australia and what might be the impact?

What is Amazon Australia and what might
be the impact on the Australian food market?

The phrase “Netflix and chill” first gained notoriety in 2011, a full five years before Netflix launched in over 130 countries and became truly global. While the rise of Netflix seems a recent phenomenon, few realise that the whole thing started in the late 1990s, when the first iteration of Netflix mailed out rented copies of DVDs to a small army of subscribers in the USA.

The same can be said of Netflix’s forerunner Amazon – the online book behemoth that now ranks as the world’s 3rd most valuable publicly traded company, behind only Apple and Alphabet. Jeff Bezos forever changed the world of book retail with its launch in 1994. In 1999, the same thing happened to retail of electronics and toys. Jewellery, shoes and games soon followed. With the introduction of AmazonFresh in 2007, Amazon Go in 2016 and their recent 2017 purchase of Wholefoods in America, many expect a similar seismic shift in the way we access food – from production to wholesale, to retail, all the way to consumption.

But what can we expect from Amazon over the coming years? What effect will the launch of Amazon Australia, and Amazon’s interest in the grocery game, have on the Australian food market?

First, let’s take a look at Amazon’s relatively recent excursions into the world of food.

Amazon’s first attempt at cracking the grocery market came to the United States in 2007 with the rather underwhelming launch of AmazonFresh. Similar to Coles and Woolworths Online, customers could order their groceries through a website and have them delivered to their front door via Amazon Trucks. Unlike Coles or Woolies, however, in the beginning, AmazonFresh didn’t have a physical store at which to sell discounted goods nearing their expiration date. Customers who received such goods would often, understandably, return them and demanded a refund. Amazon realised that they need a brick-and-mortar presence to truly succeed in the grocery game.

Fast forward to 2016 and the soft opening of the first Amazon Go store – a “smart convenience store” where customers physically add groceries to their basket while smart technology scans and logs the goods. Customers are automatically charged on their way out the door without the need for checkouts. A year later, Amazon launched AmazonFresh Pickup – a service that allows ‘Prime’ members to order their groceries online, then drive to an Amazon-run store where their groceries are waiting to be picked up and loaded into the car with the help of an Amazon worker.

Whilst the world is still waiting to see whether AmazonFresh and Amazon Go will fundamentally change grocery shopping, Amazon’s 2017 purchase of WholeFoods Supermarkets goes a long way to cement their presence in the online and physical grocery store market. Wholefoods have 470 stores in the USA, Canada and UK – and 34 in Australia – a significant increase in the brick-and-mortar holdings of the online giant. With Amazon actively seeking to grow its physical retail presence in America and around the world, one can only presume they are just getting started.

So, what does this mean for Australia? What impact is expected within the food market down under?

In late 2017, Amazon officially landed in Australia. They’ve since established their Australian headquarters in Sydney, launched Amazon Marketplace, opened their first warehouse in Melbourne and have announced plans to roll-out an Aussie AmazonFresh in the very near future. Although experts can’t agree exactly when AmazonFresh is likely to happen – mainly due to teething issues regarding Australia’s size and the distance between population centres – most see it as a formality.

Amazon’s presence down under is expected to shake-up the retail industry the most. Shares of many department stores and electronics retailers dropped after Amazon confirmed their Australian plans, and grocery store giant Woolworths has already taken steps to mitigate any potential fall-out. The “Amazon effect” is yet to fully take hold, but few are holding their breath.

Looking into the future nothing is certain, however, some predictions have been made.

The first relates to consumers. One immutable law of capitalism holds that competition helps to bring down prices and improve services. Adding another large player to a not-so-crowded grocery market is expected to do just that. And having more options can only be a good thing for grocery buyers – whether individuals, families or restauranteurs – as the competition for market share between companies is likely to not only result in lower prices but the development of new ways of engaging with their customers. Although online grocery sales account for only 2% of total grocery sales in Australia, the potential for growth is enormous and many expect our future selves to increasingly order an increasing proportion of our food online.

The second set of predictions concerns farmers as well as food and beverage suppliers. Introducing another major retailer into the grocery market gives Australian farmers and suppliers – of all sizes – another potential avenue to sell their goods. By forming a relationship with Amazon, a large number of these businesses could benefit in a huge way. Consumers would then benefit by having access to a larger variety of products. Although some fear these relationships will favour the larger scale producers and put further pressure on the little guys, many others are far more optimistic. Part of WholeFoods’ appeal and success lies in its commitment to small and midsize producers, a commitment it says it will maintain. Many more uncertainties exist. Some are concerned that cost competition will lead to lower price points for farmers, others believe the entire agricultural infrastructure system will improve. We don’t know exactly what will happen. Such uncertainties are part and parcel of any potential disruption of any market.

So how do you think the launch of AmazonFresh will impact Australian farmers and the food chain as a whole?
Only time will tell.

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