Amazon will shake up current supply channels, when it arrives next year.

Craig Matthews
December 11, 2016
Managing Director at Stock Box
Amazon is coming to Australia in 2017, with talk of destroying the local retail industry, changing the way consumers shop, and forcing supermarket giants Coles and Woolworths to set-up special teams to strategise over how they will compete. Amazon currently operates in 11 marketplaces including the USA, Canada, Mexico, UK, Germany, France, Italy, Spain, Japan, China and India. So it stands to reason that the retail industry in Australia should be rightfully concerned about the impacts Amazon will have on consumer sales. But it is the impact they will have on current distribution models that should of greater concern.
Amazon has been very transparent in announcing a concerted focus on regional Australia when it launches, as fulfilment is a lot harder in these towns, which should raise alarm bells for distributors in these regions. In the USA, Amazon holds an astounding 50% of online retail market share, with experts predicting the giant will have 10% of the overall US retail market in a decade from now.
While online sales still only represent about two percent of the entire grocery market in Australia, we need to understand that this percentage will only grow from here as players like Amazon re-define current service models, forcing traditional service models to respond. We are already seeing this starting to occur with Fastway Couriers tapping into the power of the new sharing economy, launching its innovative Blu Courier system.
It would be somewhat naive of current distributors in our market to think that independent retailers will not see the attraction of using Amazon and the like, as a potential alternative to their current 3rd party supply chain. While around 4 in 10 Australian consumers are buying at least one product online during an average four-week period, the ability to order what I want, when I want, and pay on card or BPAY, with extended settlement terms, will have a far wider appeal to independent retailers, in my view.
When it comes to independent retailers, cash flow is their oxygen and a major reason why these same retailers currently use supermarkets as a top-up shop for their business. It is believed that 15% or more of an independents weekly purchasing is made in supermarkets, as an alternate 3rd party supply chain.
In researching our membership on two separate occasions this year in relation to a Stock Box ordering portal, members indicated strong support for this service with 70% of respondents saying that they would use the service, and 80% indicating that paying on card or BPAY was beneficial in helping them manage cash flow. Suppliers also indicated strong support for such a service citing current high service fees and large distribution gaps in regional areas as barriers to entry.
The market has changed dramatically in just over ten years with the introduction of the internet, however when we look at the way product reaches the shelf, little has changed in that same period of time. The way product reaches the shelf is not keeping pace with the way consumers are now being engaged, which will play into the hands of Amazon.
While the jury is still out on how much impact Amazon will have on independent purchasing, one thing that cannot be denied is that there will be an impact. Even as little as a one or two percent erosion of purchasing into Amazon may be all that is needed to push up the cost to deliver in regional areas to the point that it is no longer viable to send a truck out to some regional locations.
If this happens then the impacts will be felt across the board, placing increased pressure on small business as they struggle to maintain continuity of supply for their key lines, and eroding volume for both distributor and manufacturer.
Major manufacturers who make up the bulk of many distributors volumes may look at this as something that does not impact on them…. it will, because when you stop delivering to these retail locations, you stop delivering for everyone! Just drive down the street and look at the closed corner store and look at the advertising on the windows and awnings, and then ask yourself did any of these brands save that business.
The issue for most distributors and manufacturers is that they are looking for a new way to engage more retailers, but are relying on traditional methods to achieve it. A mistake that Amazon will be quick point out when they arrive in September next year.
Craig Matthews is the founder and Managing Director of Stock Box, a product sampling service for suppliers and manufacturers looking to increase their ranging and distribution within the independent channels. We make product sampling simple and now offer suppliers and manufacturers an online sales and distribution solution with no distribution gaps to our retail members. For more information go to mystockbox.com.au