Aussie retailers, watch out – Could Amazon Go disrupt you?

This provides an indication of how automation and technology could dramatically change retailing in a way that goes beyond the impact of the online channel, impacting the bricks-and-mortar market as well.

Reports suggest that Amazon is planning to enter the Australian market in the second half of calendar 2017. This was reportedly delayed by six months relative to its original plan to incorporate its new fresh food offering into the launch.

While Amazon’s online presence is likely to have a relatively rapid impact on the level of price competition in the market, even if the concept store proves successful, it would take a long time for Amazon to roll out enough stores to represent a meaningful bricks-and-mortar presence in Australia. However, it shows that the investment in stores is unlikely to be a short-term requirement for both Coles and Woolworths, as new competitors progressive raise the bar.

This sort of concept also has interesting implications for the Convenience segment of the market. As such it is not only relevant for WES, WOW, and MTS, but also for CTX and the competitive position of the convenience store sales that are driven off the back of its fuel offering. CTX is investing heavily in growing its retailing business. There could be implications for the long-term return CTX generates on its investment if the company’s convenience stores are no longer as convenient as the product offering of new entrants.

Given that Amazon Go shoppers need an Amazon account to purchase goods, Amazon will be capturing detailed data on the shopping habits of all its customers, not just those that participate (and utilise) the retailer’s loyalty scheme. Additionally, the way the system works, the data would accurately track the activities of the consumer while in the store. This would provide broader and deeper data on its customers than would be available to incumbent retailers.

This highlights that the historically high returns generated by the food retailers in Australia are likely to come under attack from several angles including the need to increase ongoing capital expenditure due to new solutions to consumer access and shopping experience.

Contributed by Montgomery Investment Management:  (VIEW LINK)

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Stuart Jackson
Senior Analyst and Portfolio Manager

Prior to his departure in August 2022, Stuart was employed by Montgomery Investment Management for over seven years as a Senior Analyst and Portfolio Manager of The Montgomery [Private] Fund.

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