Supermarkets’ AmazonFresh fears ‘overplayed’

Release time:  2017-07-26 Release source:  Frank Chung author:  ADNose browse:  80

COLES and Woolworths shouldn’t be too worried about the arrival of Amazon.

The impact of the online giant’s grocery delivery arm AmazonFresh on the $108 billion supermarket industry has been overplayed, according to market research firm IBISWorld.

In a note on Monday, senior industry analyst Nathan Cloutman said while AmazonFresh would offer competitive pricing and use the latest technology, its impact on the major supermarkets would likely be mild compared with disruptions in other retailing industries.

Online shopping accounts for an estimated 2.8 per cent of total industry revenue, or $3 billion, and is only expected to grow to 4.3 per cent by 2022-23. Woolworths and Coles are projected to make $1.3 billion and $1.1 billion respectively from online sales this year.

“Online shopping penetration is much lower in Australia than in other countries where Amazon has launched its grocery service,” Mr Cloutman said.

“In the United States and the United Kingdom, online grocery sales account for approximately 6 per cent of total sales. Australia’s abundance of bricks-and-mortar supermarkets allows most consumers to purchase groceries quickly and easily instore.

“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.”

He added that Coles and Woolworths were increasingly expanding their online presence in anticipation of Amazon’s arrival. Coles opened its first online-only “dark store” in Melbourne last year, and more are expected to open over the next five years.

While Aldi does not sell groceries online, IBISWorld says its move to sell groceries online in China through the Tmall platform earlier this year indicates the company recognises the growth potential in online sales.

“One year on from starting in the fiercely competitive British grocery sector, Amazon has yet to make its mark,” Mr Cloutman said. “This is another positive sign for the major supermarkets in Australia.”

But he warned Amazon could use its large purchasing power to acquire a grocery chain and establish a physical presence in Australia, similar to its acquisition of Whole Foods in the US. Last month, analysts from Citi said a similar deal in Australia would be 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,” Citi analyst Brian Raymond wrote. “An acquisition of this scale is feasible if the geographical store footprint proved attractive.”