Amazon has launched on Australia’s $100 billion food and grocery market, prompting complaints from Woolworths that multinational suppliers are favouring the e-commerce giant with cheaper prices on brands such as Colgate, Huggies, Omo and Finish.
After stepping up pressure on Woolworths and Coles by adding food and beverages to its non-food pantry range last month, Amazon Australia is now undercutting the dominant supermarket chains by as much as 50 per cent on household staples and quickly capturing a foothold in the market.
Woolworths sources said Amazon.com.au was selling food and groceries at lower prices than Australia’s largest supermarket chain on a number of products and in some cases at prices below Woolworths’ purchase price.
“The question is are they selling below cost, which would be inappropriate. Do they have global [pricing] deals or are Australian suppliers giving them better deals than the major supermarket chains – it’s not clear,” a Woolworths source told The Australian Financial Review.
Woolworths, which accounts for about 38 per cent of the food and grocery market, plans to seek a “please explain” from suppliers early in the new year.
Suppliers found to be giving Amazon better terms risk having their brands removed from shelves and replaced with rival brands and private label brands if sales of their products underperform in Woolworths stores.
Under the Food and Grocery Code of Conduct retailers can no longer arbitrarily delist products from shelves. However, if sales fail to meet targets retailers can remove products from shelves for genuine commercial reasons or as part of a range review after giving suppliers written notice of the purpose of the review and the criteria governing their decisions.
The risk for suppliers is that if they are delisted or scaled back by Woolworths and Coles, which together account for 69 per cent of the market, they become more reliant on Amazon. Amazon has less than 1 per cent of the online food and grocery market, which grew 39.7 per cent over the last 12 months, according to Nielsen.
Suppliers risk ‘cutting own throats’
At Woolworths’ annual meeting in 2017, chairman Gordon Cairns warned food and grocery suppliers could “cut their own throats” by selling on Amazon and losing control over prices and losing business with the major chains.
“I’m not telling them what they should do, but before they step into the breach they should perhaps consider the long-term ramifications,” said Mr Cairns, the former chief executive of dairy and drinks business Lion and a former senior executive with Pepsico and Frito-Lay.
Mindshare chief strategy office Joe Lunn said Amazon Australia’s share of the food and grocery market was small but growing fast.
“Back in March nobody was buying food and groceries from Amazon whereas … now 4 per cent of Amazon buyers are buying food and grocery from Amazon,” Mr Lunn told the Financial Review, citing a Mindshare survey conducted last month.
“The reality is FMCG (fast moving consumer goods) is still such a small portion of their sales … but it’s opening the door.”
Amazon.com.au now has more than 2500 food and grocery products on its site, ranging from packaged foods such as Carmans muesli, Kellogg’s corn flakes, Milo milk powder and Mount Franklin mineral water to Finish dishwasher tablets, Omo clothes powder, Huggies nappies and wipes, Colgate toothpaste and Cuddly fabric softener.
Colgate Total toothpaste, for example, costs $3.50 on Amazon.com.au but $7 at Woolworths and Coles, Huggies nappy wipes cost between $2.99 and $3.99 on Amazon compared with $6 at Woolworths and Coles, Omo powder costs $22 compared with $30 at Woolworths and Coles and a 94-pack of Finish dishwasher tablets costs $16.99 versus $35 at Woolworths and Coles.
Some food and beverage prices are also cheaper on amazon.com including Kellogg’s rice bubbles ($3.75 v $6) and Mount Franklin bottled water (20 by 500ml, $5.50 v $6.50 at Woolworths and $9.20 at Coles). After factoring in free delivery through Prime, which is available for most of Amazon’s food and grocery items, the price gap is even higher.
However, prices on many other products on Amazon Pantry, such as Nestle’s Nescafe Blend 43 ($9.39), Nutella ($3.70), Masterfood chilli powder ($2.90), Arnott’s Tim Tams ($2.50) and Dolmio tomato sauce ($2.00) are identical to Woolworths’ and Coles’.
Market sources said Amazon was possibly sourcing some international brands through the grey market or parallel imports – a channel Coles and Woolworths have also used to source cheaper stock – pointing to subtle differences in pack sizes and packaging.
If this is the case, it also poses a risk to suppliers if Australian consumers baulk at different flavour profiles and blame the supplier, as they did when discounter Aldi imported Nescafe from Indonesia and Brazil in 2006.
In some instances Amazon’s prices are cheaper than the major chains’ on leading Australian-made products – such as Carman’s fruit and nut muesli ($3.90 on Amazon.com.au, $5.70 at Woolworths and $5.70 at Coles but on special this week at $3.90) – which would not be available through grey channels.
Coles is also understood to be concerned about Amazon’s pricing but declined to comment on Thursday.
Former Wesfarmers chief executive Richard Goyder warned two years ago that Amazon, which trades 24 hours a day, seven days a week and can take advantage of its global pricing power, would “eat all our breakfasts, lunches and dinners” unless local retailers lifted their game.
Market sources said Amazon may be adopting an every-day low pricing strategy, which Coles and Woolworths are also starting to favour over high-low promotions. However, this would not explain the 50 per cent price differential on brands such as Colgate and Finish.
Amazon Australia, which appears to be more concerned about growing sales and customers and passing savings onto shoppers than making a profit, declined to comment on its supply arrangements or whether it was selling food and grocery products at a loss.
“We obsess over the things we believe customers will always care about – low prices, vast selection and fast delivery – and work hard to provide all three, all the time,” a spokeswoman said.