Will Amazon’s launch mean more competition for the consumer in South Africa?
Amazon to access South Africa18th Jul 2022
A report by Business Insider South Africa claims that online retail giant Amazon has plans to launch in South Africa in 2023. The website says it has seen leaked documentation that Amazon will launch its Prime service in the country too.
Experts believe this could be a game changer for the South African market that has been dominated by Naspers owned Takealot.
Here two digital experts unpack what the potential launch of Amazon means for South African consumer and local businesses.
What is Amazon?
For those not in the know, Amazon is an American multinational technology company which focuses on e-commerce, cloud computing services, digital streaming and makes use of artificial intelligence (AI). It was founded by Jeff Bezos back in 1994 and during its humble beginnings it made a name for itself selling books, videos and music online.
Amazon Prime, its paid subscription service gives loyal users access to additional services. Prime members can enjoy quicker delivery services (usually same day or up to two days) as well as streaming music, video, gaming and grocery shopping services.
Recently, the company has launched Amazon Fresh a grocery delivery service which also has a chain of check out free grocery stores. At the time of writing there were 18 Fresh stores launched in the UK.
What makes South Africa an attractive?
South Africa’s rapidly growing ecommerce market has clearly caught the eye of Amazon which wants to capitalise on its growth.
Yaron Assabi, CEO of Johannesburg based Digital Solutions Group, says: ‘There is no doubt that the South African e-commerce market is booming – especially off the back of the pandemic where – according to FNB – online sales jumped by 41% in 2021 (55% in 2020).
‘Our e-commerce market is set to reach more than R400 billion by 2025, which is double the market now. Therefore, it is no surprise that big global players such as Amazon are entering the market and is testament to the market growth.’
This, believes Assabi, is a good thing for South Africa. He explains: ‘From an economic perspective, such investment is very much needed in the country, and we can’t deny the benefit of this. We also require foreign direct investment and job creation opportunities to create local employment as unemployment rate amongst youth is so high.’
He adds: ‘Amazon already has a contact centre in Cape Town that serves the German market so by investing in a South African presence we will hopefully see more jobs being created.
‘For the consumer, this will certainly be a good thing as it will open much needed competition in the mainstream e-commerce space – forcing down pricing and creating access to a large range of products. Depending on their model – it could present access to products that would traditionally not be locally available too, again increasing competitiveness and choice.’
The business impact
The launch of Amazon may not, however, be such a welcome concept for businesses as it means increasing competition. According to local web hosting company 1-grid.com it could impact small business’ margins and market share when it comes to online sales.
Thomas Vollrath head of 1-grid.com advises: ‘The best way for small businesses to differentiate themselves from the convenient-but-impersonal experience of Amazon is to offer a personalised service – and build personal connections. Use your website, social media, and delivery notes to tell the story of your business. This is the best way to really connect with consumers and make them feel good about buying from you.’
Assabi adds: ‘For smaller players that focus on locally sourced, niche products and unique online offerings that go beyond product and focus strongly on personalised service offerings, the impact is likely to be less. It is here that consumer loyalty is likely to remain as products that aren’t available elsewhere will remain their bread and butter.’
Established players like Takelot may well engage in price war. Assabi says: ‘This will make the market a lot more agile in terms of pricing, sourcing, and marketing – and we are likely to see a strong shift in online shopping in SA.’
Will it work out?
Not all of Amazon’s offerings may succeed in South Africa. It’s Amazon Fresh check out free stores are unlikely to be popular.
‘This type of retail model is in its infancy in South Africa. We have seen glimmers of the movement to this model with self-scanning in certain stores and of course, with delivery apps – but not to this level. It will happen in the future, but it depends on the usage of digital/mobile payments and NFC which is not yet adopted widely.
But this is not the only challenge. ‘There are several local challenges that will be a barrier where the unions, within reason, will push back on this given the urgent need to stimulate job creation locally.
‘Secondly, government will likely not allow this until such a time that their employment agenda is seeing recovery.
‘Lastly, the knock-on effect of unemployment is crime, and a model like this will need a lot of work locally to circumvent petty theft in store and ensure this model can in fact be profitable,’ says Assabi.