How Amazon will dominate Aussie groceries…. eventually.

The Australian grocery industry has been dominated by Coles and Woolworths since the inception of the supermarket itself. These giants have enjoyed huge market share, dominance and price leadership for many decades. There has been much controversy as to whether Aldi can grab a major piece of that market share, so far they have not.

Amazon, however, has a very different approach to business as we know. Some are saying they can dominate others object. Some marketing experts are of the opinion that the Australian population would love to see a new player come in and shake up the online grocery shopping experience like Apple did with the mobile phone industry, music industry, and media.

The question is: Can Amazon combine grocery and online shopping into one seamless experience that easily fits into their routines and improves their busy lives? As the US website of AmazonFresh (Amazon’s online grocery shop) proudly points out online grocery shoppers “can order from more than 500,000 items for same-day and early morning delivery, including everything from fresh groceries and prepared meals to toys, electronics, household goods, and more.”

In its US operations, Amazon’s target market segments include families with both parents working, busy professionals, and high-income singles, helping these customers shop groceries in the most convenient ways possible. American customers are ready to pay extra for avoiding all hassles of grocery shopping when they do so online. Amazon’s target segment- DINK (“double income no kid”) families – are less price-sensitive because of two incomes and no childcare costs, and are ready to pay price premiums, and delivery fees. Amazon uses this platform to cross-sell and up-sell many non-grocery products that carry higher margins. For example, when a parent from a busy household shops groceries on AmazonFresh, she looks for various non-grocery items such as nappies, rubbish bags, and laundry detergents. For the customer, AmazonFresh’s one-stop anytime shopping benefits outweigh the price premiums. Another market segment benefited by AmazonFresh comprises the urbanites without vehicles. By catering to this segment of the American market, Amazon has reduced it’s per delivery costs and increased market density. In return, the benefits enjoyed by this segment, such as reducing travel time for grocery shopping, and the inconvenience of carrying heavy bags on public transport, have made it a popular choice among grocery shoppers. Instead of waiting for public transport, the customer just needs to log in.

In Australia, the rising trend of apartments with reduced or without car parking is necessitating an emergence of online retailers and grocery stores. In a world that is fast recognising the evils of climate change and global warming, cutting down on carbon emissions by not making weekly car trips to grocery stores, and ordering online definitely has its advantage. For a scientific-minded customer, this is reason enough to buy on AmazonFresh and bask in the warm, fuzzy glow of contributing to an environmental cause. While these customers do not form a critical mass for Amazon, they can become evangelists easily.

Amazon’s success story in markets such as the USA is phenomenal. Amazon’s expansion and marketing strategies in the UK and Australian markets are likely to follow the American footsteps. Amazon’s strategy to gain control of the American market in e-commerce is a long-term one. By establishing AmazonFresh in the US market, the company went one step closer to its motto of “the everything store.” The online grocery business is a strategic move by the company to lock in more customers for the company, and broadens its customer base, making the Amazon experience “inseparable” for the customer. Amazon’s business model runs on the rationale that once a customer becomes a Prime member, she will tend to make all her family purchases from Amazon’s marketplace to justify the membership fee, thus eliminating the likelihood of defecting to another retailer. With an enviably large active customer base of 200 million in its marketplace, this company with a brand value of US$98.99 billion (Statista,2016) already has a competitive edge over most of its competitors. Amazon’s foray into the Australian market through its online grocery store is likely to be a replica of its US strategies.

To marketing experts, Amazon makes a good case study not only for its expansion and business diversification but also for various strategies to get closer to its online customers and complete their transformation into brand evangelists. In recognition of the needs of the customers to order online but pick up from a designated place in the store, Amazon began its Lockers program. A customer places his order online and specifies one of Amazon’s lockers as the delivery address. When the order is “delivered”, Amazon informs the customer who can drop in and collect her item. Adding this convenience to its customers, especially those who live in neighbourhoods without secure postal or drop boxes, is one of Amazon’s strategies to increase customer loyalty to its platform. Amazon’s success in its different lines of business has often been attributed to the company’s marketing strategy of creating brand evangelists. Brand evangelists are that special “force” of brand loyalists who just do not stop at repeatedly consuming a certain product they have taken a fancy to, they practically sing in praise of the product whenever they can, and wherever they go. In other words, these are the customers who are engaged, excited, and thrilled to talk to the word about the product they love.

How has Amazon created such hyper-repeat customers who do the marketing for the company? This is how.

Amazon knows what life improvements its customers are looking for or what their expectations are from the product or service or how the customers want to use it. In other words, Amazon has deep insight into customers’ thought process which guides them in their product or service design. For example, to keep up with the local food movements, the company has tied up with local food providers. Amazon uses these deep customer insights to develop and improve its products, to turn it from a commodity into a singular product. Amazon focuses on mainstream customers, and not on early adopters. Amazon strives to provide its customers with unforeseen but great quality additional functionality. Amazon likes to surprise customers by offering them excellent products and services that exceed their high expectations. It reaches a height when the customers start comparing their lives before and after an Amazon product or service. In a nutshell, Amazon customers gain a unique experience when they buy an Amazon product or service. This acts as a product differentiator. All these factors, aiming at making customers’ lives better, contribute to creating customer evangelists.

Though all supermarkets aim at creating brand evangelists, it is a tough turf war in the supermarket and grocery industry. The capital and labour-intensive nature of the industry attracts only big players. According to an industry analysis by IBISWorld, in the Australian market, for every dollar spent on capital, the stores have to spend an estimated $ 7.14 on wages. This is in addition to the large amount sent by stores on brand promotion. In the Australian market, the competitors Woolworths, Coles, Costco, and Aldi compete against each other by investing heavily in customer service, interactive social media platforms, content marketing, and turning their employees into evangelists. Besides these, giants such as Aldi and Costco offer heavy year-round discount operations for private labels. In fact, market experts attribute Aldi’s rapid growth in the Australian market in the past five years to its discounted private-labels. Grocery shoppers are price-sensitive and this race to become the price leader has prompted Woolworths and Coles to expand their private-labels, too.

Will AmazonFresh be able to survive in this competition? The answer is Most Likely. These are the reasons why.

First, though new as a grocery store in the Australian market, Amazon is no greenhorn in the grocery business. The company has gained experience in this trade by operating in the American market for the past many years, their first operation having started in Seattle back in 2007. The company has turned around the e-commerce scene in America to the extent that prompted by Amazon’s fast growth in sales online, many brick-and-mortar sellers, such as Macy’s, Nordstrom, and Target have opened or expanded e-commerce efforts to boost sales.

Second, since as a brand, Amazon is extremely well-known globally, the Australian consumers are already aware of it. Amazon, in the USA, enjoys the highest brand recall among consumers when compared to any other e-commerce players (Nielsen’s E-commerce Sellers Study Q1 2016), and has consistently been nominated as the top e-commerce platform. According to Brand Index published by global insights agency YouGov, Amazon has the highest rank in the USA.

Third, Amazon already has a large consumer base in countries such as the USA and India but has so long limited its operations in Australia. Amazon Australia presently only sells Kindle books online. However, with the roll-out of Amazon TV and AmazonFresh in the Aussie market, the e-commerce giant has already shown its inclination to expand its operations in this market in multiple lines of business. Acquiring customers and building up a good customer base, through cross-selling and up-sell of its products and services, as it has done in other markets, will be one of the top priorities of Amazon in Australia.

Conclusion

The company will, no doubt, draw from its experience and try to replicate many of its successful marketing strategies already in action in other markets, such as creating consumer evangelists. It can take lessons from its” experiments” in these markets, too. For example, in the US market, the company lost many of its consumer evangelists when it increased its membership fees three-fold. But as of now the news of Amazon’s proposed entry into the Australian market with its online offerings through AmazonFresh has been welcomed by the customers and created ripples through the supermarket and grocery industry as competitors brace up for battles over market shares.