Amazon is already chatting to Aussie grocery suppliers: Is it primed to win the supermarket wars?

Amazon Australia

Amazon looks primed to enter Australia’s supermarket wars, but even as analysts suggest it’s getting ready to rumble with Coles and Woolworths, other fresh food businesses maintain the global retail giant will only benefit smaller businesses.

A UBS report of local grocery suppliers released today highlights a widely-held view that Amazon will be established in the local grocery sector within the next three years, reports The Australian. 

Eight of the 49 suppliers UBS surveyed about a local Amazon offering said they had already begun talks with the retailer, with all of these in the dried food or non-food product space, according to analyst Ben Gilbert.

Since the official confirmation of Amazon’s Australian launch in April, speculation has been rife about which sectors it will try to capitalise on first.

However, despite UBS also highlighting a near-unanimous view from grocery suppliers that we will see bricks-and-mortar Amazon stores in Australia in future, when it comes to online grocery delivery it would be chasing a much thinner slice of consumer spending.

According to recent IBISWorld data, Australia’s overall grocery sector collects $103 billion a year and books $5.9 billion in profits. This is compared with $2.7 billion in online grocery sales, which deliver retailers $104 million in profits each year.

Online grocery retail is still in its infancy, and this has allowed a number of potential disruptors to jump in with fresh-food delivery alternatives designed to steal revenue from Coles and Woolworths’ fresh food offerings.

One of these competitors, meal delivery kit service Marley Spoon, believes any entry of Amazon into Australia’s grocery space would only serve to help local businesses by legitimising online food delivery.

“I’m very relaxed about Amazon coming,” Marley Spoon founder Rolf Weber told SmartCompany this morning.

If anything, the potential for Amazon to position itself as a fresh food option in future could only accelerate the size of the country’s online grocery revenue, Weber says.

“We have to battle a couple of things in changing consumer’s minds about buying food online … and there’s a huge amount of catch-ups to do in groceries. The point is, Amazon is not a threat to us,” he says.

Marley Spoon has a focus on developing relationships with local farmers and food suppliers, and Weber says the growth of the business is not dependent on who else those smaller suppliers give their produce to, but whether their products fit the needs of the customers.

Weber has previously told SmartCompany the big supermarkets have been missing opportunities in the delivery space for some time, and this has given smaller startups an opportunity to form relationships to deliver fresh food first.

“We go out and buy the best produce out there that is produced by hard working farmers. For us, it’s important we work with farmers directly and ideally as much as we can with smaller suppliers,” Weber said this morning.

However, analysts and retailers continue to go head-to-head on exactly how successful Amazon will be when deploying services in Australia. Electronics store king Gerry Harvey has maintained that Australia’s unique logistics challenges will prove a stumbling block, while retail experts believe Amazon is looking at the long game rather than a rapid expansion across the country.

Either way, data on consumer spending habits suggest some behaviours will have to change before online supermarket shops become a top priority for Australians.

A Roy Morgan spending snapshot released at the end of March confirmed Amazon is primed to collect from the country’s 8.7 million online shoppers, but food, health, house products and baby items have a very long way to go before becoming the most popular online purchases.

Instead, entertainment, fashion and reading material are still the most popular categories for online sales.

The question will be how quickly supermarket goods can close the gap and overtake other categories. Roy Morgan observed food and beverage sales online have grown 67% between 2013 and 2017, while house and garden purchases increased 64%, and health and beauty sales grown 51% in three years.

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