It won’t be a slam dunk for 800-pound gorilla Amazon in South Africa

Amazon is set to launch its online shopping service in South Africa this year. The tech giant announced in October last year that it would provide independent sellers throughout the country the opportunity to launch, grow, and scale their businesses. In anticipation of Amazon’s arrival, Naspers has boosted investment into Takealot, the home-grown e-commerce leader in South Africa and said they were well-positioned to deal with whatever could be coming from Amazon. In an interview with BizNews, e-commerce entrepreneur Andy Higgins, who started Bidorbuy and is now the Managing Director of the Bob Group, said while many people believe Amazon will have a massive impact on day one, he thinks it would take them longer. The challenges for Amazon, he said, would be the localisation of the software they use globally, infrastructure, and logistics. Higgins said the South African market has different nuances and Amazon will have to find ways to adapt which, “will be a bit of a challenge.” Ultimately, he said the consumer will be the winner if there is price competition. In terms of growth potential for e-commerce, Higgins said South Africa lags the rest of the world and even its emerging market counterparts. Penetration is still under 5% of total retail sales compared to Brazil, India, and Southeast Asian countries where e-commerce penetration is already over 10%. Amazon’s entry into the South African e-commerce market is absolutely not going to be a slam dunk for Amazon; “they have not been successful in every country,” he said – Linda Van Tilburg

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Relevant timestamps from the interview

00:00 Introduction
00:56 – Amazons challenges in South Africa
2:00 – Takealot
03:12 – Will Takelalot be able to compete
04:14 – Impact on small businesses
05:01 – Advice to small businesses
05:43 – Size of e-commerce market in SA
06:57 – Impact of tech issues in SA
08:21 – Drones and things coming to SA
10:00 – Andy Higgins’s experience
13:19 – Is more market enquiries good for business?
14:23 – People who are loyal to local products (Takealot)
15:42 – Conclusion

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Excerpts from the interview

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It will take Amazon longer to adapt to make an impact on the market

I think many people expect Amazon to come in and from day one, have a massive impact on the market. But I believe it’s going to take them longer than most people think to make a difference. I think some of the challenges they’ll face include not having control over their infrastructure on the ground. When it comes to e-commerce, infrastructure is critically important. So they’ll be using third parties and they’ll have to integrate those third parties into the software that they use globally, I imagine, for providing the Amazon Marketplace service and I’m sure that will come with some challenges, at least initially.

The challenges will be infrastructure and logistics and the localisation of that. I think there are differences and nuances in our market compared to other markets where Amazon operates. They will need to find ways to adapt how they do things normally for the local market, which I think will also be a bit of a challenge.

E-commerce is localised, Takealot in strong position

I do think that Takealot, being the most established player as it stands, would face the most competition from them. And I also think they’re probably the best positioned to take them on as well. If you look back when other international players entered the market in other areas, like Google with Search or Facebook and Twitter in the social media aspect, they did dominate. They already had a strong presence in the market even before they established a local presence.

However, I think e-commerce is different in that it’s more localised. It requires more feet on the ground with a local presence, local warehousing, and infrastructure for logistics and all of that. So, I think a lot of people expect that we’re going to see the same with Amazon coming in and just taking over and dominating from day one. But in my view, don’t get me wrong, I don’t think we should underestimate Amazon and their potential and what they could bring, but I just think it’s going to take a lot longer than most people think.

Consumers will benefit from competition on service and experience

If you look at the pricing model that Amazon has already published, it’s very similar to that of Takealot, at least from what they charge from a seller’s point of view. They’re going to be competing for essentially the same products because it’s mostly based on a third-party seller model where they don’t sell the products themselves. They provide a platform for third-party sellers to sell. They’re essentially going to have the same sellers who have the same cost base. And if they’re charging essentially the same price, I think it’s going to be difficult to discount the pricing unless they discount it themselves. However, there could potentially be some competition commission issues that come with that. I think in the long term at least, pricing will probably be similar. I think it’s going to be more competition for the service and the experience that consumers have using each of the different platforms.

Threat to smaller players

I think most will probably sell on both platforms. I think ultimately the consumer will be the winner if there’s a bit of a price competition that does kick in there. But, I also think there’s a threat for smaller players as well because what we might see is some of the bigger players taking the South African market more seriously, making it where they come with stronger pricing ability just due to the volume that they’re able to offer. So it could, in some respects, make it more difficult for the smaller players. I guess we’ll just have to wait and see how that pans out though.

My advice to them would be: Don’t compete with them, rather leverage them and use them to help grow your business. I would suggest to the smaller players to definitely create their own presence with their own website and try to build that, build their own brand and direct sales as much as they can. But then also piggyback on top of all the online marketplaces. I would suggest listing your products on all the marketplaces. Use that as an additional sales channel to get additional sales, while also at the same time growing your own direct sales channel as well.

South African e-commerce penetration lags, potential to reach 10%

South Africa still very much lags behind the rest of the world, even our emerging market counterparts. We’re still under 5% of total retail. So, if total retail is somewhere around R1.4 trillion a year, we’d be looking at about R70 billion in e-commerce sales per year in South Africa and that’s still low, even when you compare us to the likes of Brazil, India, or other Southeast Asian countries. Most of those countries have well over 10% e-commerce penetration already. So, we still have a lot of catching up to do. I, for one, am hopeful that Amazon’s entry into the market is going to act as a catalyst to help get us to where we should be, which is beyond the 10% of retail for e-commerce.

I absolutely think it will grow. I think it’s just a question of time and how long it will take. I’ve been saying for probably a long time now that I felt we should be there already. So, I’m not going to hazard a guess as to when that will be. But I’m very sure we’ll get there at some point, yes.

Will South Africans prefer ‘Local is lekker’?

I do think that loyalty will play a factor. However, I wonder how loyal South Africans really are at the end of the day when it comes to financial considerations. But yes, I do believe that loyalty will be a factor. Perhaps more so from a pure conscience point of view, and also from having a stronger local presence with local infrastructure. I just think that the experience may end up being better for customers. Fortunately, I think they might make that choice, not only because it’s easier, but also because it could potentially offer a better experience.

Amazon has not been successful in every country

If you can look at other markets where Amazon has launched, even in smaller markets in Asia, and in countries like Morocco or Poland, where there have already been strong incumbents, India is also another very interesting example, with big investments from the likes of Amazon and essentially, Walmart through their investment in Flipkart. They haven’t been successful in every country they’ve entered. So, it’s definitely not a slam dunk for them.