Value.able: Roger Montgomery

Australia’s big supermarkets will have to fight harder to resist Amazon’s onslaught

Despite more than eight years of economic growth in the US, retailers there have been going out of business at a rate normally reserved for very deep recessions.

Until now the e-commerce apocalypse that has decimated retailers has largely been concentrated in apparel, which has also suffered from a growing share of spending on recreation such as restaurants and travel.

It seems the growing earnings power of millennials is simply driving more sales online. Amazon’s sales have grown almost tenfold in the past decade, from $US15 billion ($19 billion) in 2007 to $US178 billion in 2017. Amazon was also responsible for about 44% of all US e-commerce sales in 2017, or about 4% of total retail sales, according to One Click Retail, a market researcher. In less than five years, 20% of the US’s $US3.6 trillion retail market will have migrated online, and Amazon is expected to capture two-thirds of that trend.

While luxury retailers have beaten a retreat from expensive real estate sites, retail jobs are plunging even ahead of automation and retail real estate is being vacated at the highest rate since 2008, grocery has largely been untouched.

But it is only a matter of time before Amazon’s purchase of upmarket grocer Whole Foods for $US13.7 billion is integrated with its logistics and delivery systems, including Dash Buttons, supporting a private label push whose wave could eventually hit Australia’s shores.

According to the industry website Food Dive, grocery store openings in the US declined 28.8% as major chains shuttered stores. News website Curbed NY has reported and mapped New York’s disappearing grocery stores, Convenience Store News has reported a decline of mid-size chains across the US, and Lidl’s US expansion has slowed amid aggressive pricing by competitors.

The US, however, is behind many parts of the world when it comes to the penetration of online grocery shopping. While 4.3% of domestic grocery sales are conducted online in the US, that n umber is 19.7% for Korea, nearly 6% for China and over 7% in the UK. And in Australia, according to the discount coupon site CupoNation, Australia’s online grocery sales are growing seven times faster than the total market.

The shift is already triggering brands to change their strategies. Retailers are looking to private labels to retain margin. Overseas, mega retailers such as Kroger are making private label growth a top priority in 2018, while Walmart’s Jet.com rolled out its first private label, Uniquely J, while simultaneously purchasing Shoes. com, Bonobos and ModCloth to compete directly with Amazon.

In response, established brands, which have been removed from shelves and pressured on margins, now see grocery stores as their biggest competitors, not their big-

gest clients. They are taking control of their distribution channels either by building their own platforms using Magento and BigCommerce, or initially partnering through competitor Amazon until they launch their own strategy. Meanwhile, tech start-ups are looking to serve brands in their attempts to regain share by offering assistance at every step of the supply chain, from subscription to packaging, delivery, search and social media.

In Australia, Woolies and Coles have all this ahead of them so they’re not standing still. Already Woolworths serves more than 9 million visitors each month on its e-commerce platform and Coles 7 million.

Woolworths is expanding its click-andcollect service to more stores nationwide while Coles dominates social media with 1.2 million followers versus Woolworths’ 1.05 million and Aldi with almost 600,000. In the US, Whole Foods is a case study in building a fan base through social media.

Australia’s incumbent retailers will have to do more. In the US, Amazon Dash Buttons are product-branded, thumb-sized, wi-fi devices that can be attached to the door of the pantry or fridge. To reorder a favourite product, just press the button once, without ever looking at an app or searching on a website.

Trying to win back a customer who has a pantry full of these devices may be a challenge. Of course, the batteries will eventually go flat!

To reorder a favourite product, just press the Dash Button once