Is Amazon heading for SA?
After Brazil and India, online retail giant could open locally
● The story of Amazon’s disruptive retailing model has for the most part played out in the developed world but some market commentators suggest the company, one of the world’s largest, might soon enter the South African market.
Nivindya Sharma, director of retail strategy and insights at trend forecaster WGSN, said Amazon had the potential to rapidly capture a huge share of the South African market.
It “creates an ecosystem for local and international brands who want to sell on a platform without actually opening shop in the country”, Sharma said.
Amazon Web Services already has offices locally. The parent company was not available for comment.
Destination for retailers
Over the past decade, South Africa has attracted some of the world’s leading retailers, such as H&M.
Falling sales in their home geographies have forced these retailers to seek emergingmarket opportunities. Five of South Africa’s major retailers, including Shoprite, Pick n Pay and Woolworths, are among the world’s top 150 retailers.
While Amazon does ship certain orders to South Africa, for many of its products consumers need to use a US-based forwarding service.
South Africa’s e-commerce sector is still in its infancy, contributing a mere 1% of overall sales, but it is growing.
Michael Treherne, a portfolio manager at Vestact, said that in South Africa Amazon could leverage off existing infrastructure from e-commerce retailers.
“When Amazon launches here, maybe they would buy out Takealot with their existing infrastructure,” he said.
“The bigger challenge will be converting people from brick-and-mortar to online and that will only happen as infrastructure improves as internet access gets cheaper. The internet in South Africa is still very expensive.”
Getting used to online shopping
According to a Nielsen study conducted last year, South Africa has a 49% internet penetration rate.
In the same study, 51% of consumers said they would go to a physical store to buy groceries and would not consider buying them online; 40% said they were not buying groceries online but would consider it; 6% said they had bought groceries online in the past but not recently; and 3% said they regularly bought groceries online.
Gareth Paterson, Nielsen South Africa head of retailer services, said: “We found that the most effective strategies to engage shoppers starts with an in-depth understanding of how shoppers make purchasing decisions both online and in-store, while considering the blurring across both options, then offering touch points that are specific and relevant to their needs.”
Paterson said online and in-store switching behaviours suggested that most consumers chose to buy fresh and packaged groceries and medicine or healthcare products in-store. But he said the use of online shopping options was growing, especially among tech-savvy millennials.
No more corner grocer
Locally, Amazon could offer grocery retailers an online platform that would not require them to create their own infrastructure.
Amazon has signed a distribution deal with French retailer Casino Group, meaning groceries from upmarket brand Monoprix will be available to customers of Prime Now, Amazon’s high-speed delivery service.
Treherne said one benefit of Amazon Prime was that it offered free shipping. “I would be worried if I was Takealot if Amazon had to arrive,” he said.
While Amazon’s tremendous growth has mainly played out in the US, where it has challenged traditional business models such as Walmart, the company has over the past six years found some success in emerging markets such as India and Brazil.
The challenge will be converting people from brick-andmortar. The internet in South Africa is still very expensive Michael Treherne Vestact portfolio manager
A couple of Brics
In India, it launched a price comparison site called Junglee as a launching pad to gather market intelligence.
At the time Flipkart, another e-commerce giant, was the biggest retailer in the country. However, Amazon has narrowed the gap.
Amazon got into India early when the e-commerce boom was just beginning and it started sponsoring fashion weeks to build brand awareness.
In Brazil it launched Kindle stores and might launch its full retail offering sometime this year.
Referring to Amazon’s possible expansion into South Africa, Treherne said: “Competition is never nice, especially competition with fairly deep pockets . . . Amazon’s pockets are so deep, and they can expand quickly.”