Supermarkets gear up for Amzon’s arrival
Australia’s big supermarkets are gearing up to meet the threat of Amazon, with Woolworths planning to offer what it calls extreme convenience.
With the US online retailer expected to start operations in Australia in the next two or three months, the damage it could do to retailers’ profit has become a very tangible threat.
In response, Woolworths has established pick-up points for online grocery orders at all of its 970 supermarkets around the country and is testing one-hour deliveries.
It believes many customers will want to order their groceries online then pick them up on the way home from work rather than having to wait around for a delivery driver.
The Woolworths app on customers’ smartphones will let the shop know when the customer is approaching so their order can be ready to go. In about 100 locations shoppers will be able to pick up their groceries via drive-through.
It is one way the retailer is responding to customer demands for “extreme convenience” and is aiming to provide customers with a wider choice in how they get their groceries.
“Amazon is obviously a very material potential competitor in this space,” chief executive Brad Banducci said last month.
“Customers are looking for a lot more convenience in the way they shop.
“Amazon and many others are of course going to provide that convenience if we don’t.”
In fact, the pick-up initiative was conceived by WooliesX, a new division created by Banducci to accelerate its online growth and prepare for the arrival of Amazon.
Coles, the other big supermarket chain, is trialling a home delivery service with Uber under the UberRUSH brand that will make rapid deliveries of items missing from online orders.
It has also teamed up with local bike delivery outfit Deliveroo, offering a limited range of groceries to inner-city areas. There is some irony in the fact that the threat of technology and online is bringing a return of bicycle grocery deliveries, a sight not seen on Australian streets for decades.
Online currently accounts for only about 3 per cent of Australia’s A$90 billion ($99b) grocery market, but there is little doubt that will grow quickly.
Amazon is keeping quiet about its exact plans in Australia, but there is little doubt it is planning an assault on the grocery sector.
It has been in talks with many of Australia’s packaged food suppliers and non-food grocery suppliers.
Amazon’s power in the market can be seen from its US$13.7b ($19b) purchase of US grocery chain Whole Foods Market.
Not only does it demonstrate that the online giant is prepared to spend big to make inroads into groceries, it also shows Amazon’s pulling power. In the week after the purchase, it slashed prices and drove a 25 per cent increase in foot traffic to the store.
The Amazon brand is already familiar to and trusted by many Australians, so there is no reason to believe local shoppers would be anything but enthusiastic about its grocery offering.
Australia’s retailers will have been looking at these reports with trepidation.
None of this comes cheap for the retailers.
The Woolworths pick-up service is to be free for orders over A$30, which would be almost all of them. That means the supermarket will be paying a worker to roam around the store and select the items for each customer’s order, with the cost shaving a few dollars off the profit from each basket of groceries.
A recent UBS report estimates that Amazon will cut the earnings of Coles and Woolworths by 8 per cent over the next few years.
Media ownership shuffle
We can expect a spate of media mergers and consolidations now that the Senate has passed the Government’s new media laws. The legislation is yet to pass the Lower House, but with that being no more than a formality, the media companies will soon start jockeying for position.
The new rules are a big win for Australia’s media owners, in particular Rupert Murdoch.
They will scrap the “two out of three” rule which prevents companies owning print, radio and free-to-air television in the same market.
Murdoch’s behemoth News Ltd will be free to snap up smaller media companies and potentially move into radio in addition to pay TV and print.
Fairfax, the publisher of the Sydney Morning Herald, Melbourne’s Age and a raft of regional papers, is expected to be at the forefront of any move and is likely to merge with a TV station.
The question is whether it will be Nine Entertainment Co or Seven. Nine is a pure TV player whereas Seven owns newspapers and magazines as well.
Media companies will be looking to merge to achieve cost savings and to be able to take advantage of each other’s products as they try to protect their advertising revenue from Google and Facebook.
Amazon.co.uk’s giant distribution centre near Milton Keynes.