Amazon: Australia is just the beginning

AmazonThe US e-commerce giant has all but announced the launch of AmazonFresh in Australia in 2017, with explicit references to the online grocery store appearing on the company’s list of job openings in Brisbane earlier this year.

But as evidence of Amazon’s arrival Down Under stacks up, sparking dire predictions and rampant speculation, the bigger picture is still coming into focus for many in the industry.

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“Amazon is entering Australia because of South East Asia. Australia is just one piece of the puzzle,” revealed an anonymous Amazon employee to IRW.

The source said Singapore will serve as the company’s launching pad to sell food throughout Australia and South East Asia, while another hub in Vietnam will eventually allow Amazon to sell into other South East Asian countries and parts of China. The Philippines, Thailand, Malaysia and Indonesia are viewed as target markets.

“That is a much bigger value proposition to Amazon. Australia is just one of many countries Amazon is targeting. It’s just that its proximity to South East Asia makes it an attractive market,” explained the Amazon source.

Indeed, Amazon has also advertised a slew of new HR, procurement and logistics roles in Singapore, where it has been acquiring refrigerated trucks and other assets ahead of the rollout of Prime and AmazonFresh there. This was suggested in a TechCrunch article last year and confirmed by the Amazon source to IRW.

Amazon’s move into Singapore comes as competition in the region is heating up. Alibaba-backed Singaporean e-commerce company Lazada is in talks to acquire the online grocery player Redmart, while the on-demand grocery delivery service HonestBee is looking to expand.

It’s a regional strategy that will allow Amazon to minimise the cost of doing business in Australia, where high wages and property prices can be prohibitive to a large on-the-ground presence.   

“Amazon will try to source locally as much as possible to cut costs, but if it does have to ship it in, they’ll ship it from Singapore, not the US. They’ll start putting a lot of inventory in Singapore, so when an Australian customer places an order, that’s where it will come from.

“They’re hiring people in Singapore to do the technology and logistics aspect of it. How can products be sourced in Singapore and shipped by aeroplane to Australia, unloaded at the airport, taken to the fulfilment centre and then taken to the delivery station in urban centres?”

This scenario is similar to what former Deloitte consultant Brittain Ladd described in his 2013 report, A Beautiful Way to Save Woolworths. Ladd has since been recruited by Amazon and now leads the expansion of AmazonFresh globally, according to his LinkedIn profile.

It’s also a possible answer to lingering questions about the timeline of Amazon’s arrival in Australia.

Why Australia?

“I genuinely feel it may not happen. Some of the reasons are simply issues around whether they can find established logistics providers and businesses to form alliances with,” said Gary Mortimer, associate professor and food retailing expert at QUT Business School.

Mortimer also highlighted the relatively small online grocery market in Australia. While consumers shell out $90 billion on groceries per year, only two per cent of that is spent online.

“There’s not a big market to chase after. Plus, the size of the population is small and it’s dispersed,” he said.

“Amazon is doing a great job in the UK and US, but they’re dealing with a different population size and density here.”

This all begs the question that too few have asked so far. Why Australia?

Insight into the company’s South East Asia strategy goes a long way to answering that question. The rest may be explained by the fact that Amazon won’t be launching its online grocery offering straightaway, but rather starting with its express delivery service, Prime Now.

“Prime Now is a jack-of-all-trades to learn what people want to buy,” said the Amazon source.

When the service launches this year, Australians will be able to buy a wide variety of items, including books, apparel, ink cartridges, vitamins and health food products from the Amazon website, and have them delivered in as little as one hour.

The source said Amazon will launch the service in one of Australia’s major cities to start, with just a few fulfilment centres and several small, centrally-located delivery stations.

“It’s easy to enter a country or a continent through Prime Now because you don’t need massive distribution centres,” explained the source.

AmazonFresh will likely launch a full year after Prime Now, but only if Amazon sees consumer demand for food items first.

“Amazon is like any other retailer. If it’s not selling enough food items, why would they launch a food company?”

This more nuanced view of the company’s approach extends to pricing too.

“Amazon may be able to be competitive on a few items, be cheaper on additional items but on other items, it may not be able to be the low cost leader,” the source said.

“Amazon in the US is not the low-cost leader. The thing they offer is the convenience factor. There’s a value in that.”

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