Is Amazon a bigger threat than Aldi to Australia’s supermarkets?

Wesfarmers Ltd (ASX: WES) managing director Richard Goyder appears to believe that US retail giant Amazon is the biggest threat to Australia’s supermarkets.

Speaking at the Retail Leaders forum in Sydney, Mr Goyder says Amazon will “eat all our breakfasts, lunches, and dinners” unless Australian retailers become more innovative and barriers to competition are removed.

Tech giants like Amazon, Google and can trade 24 hours a day, every day of the year, while Australian retailers like Wesfarmers-owned Coles, Bunnings, Kmart, Target, Liquorland, 1st Choice Liquor and Officeworks were restricted by rules around trading hours and excessive regulation.

Western Australia and Perth has some of the strictest retailing conditions with some shops only allowed to trade for six hours a day on Sunday – the busiest shopping day of the week in other capital cities, according to Fairfax Media.

However, there’s nothing stopping Wesfarmers’ retail brands from ramping up their online presence and boosting sales from their online stores – which can operate 24 hours a day, every day of the week.

But Mr Goyder is right to fear the large tech companies like Amazon from taking over retailing in Australia. The giant former bookseller now sells almost anything online, even allowing other retailers to sell their goods through Amazon – for which it takes a cut naturally.

UK lessons

Amazon has also recently moved into the UK and is ramping up the range of grocery products it sells. Amazon Pantry launched in November 2015 and allows customers to buy from a range of over 4,000 grocery and household products, including big brands such as Kellogg’s and Colgate.

The giant retailer has just announced a deal with UK supermarket Morrisons to offer fresh and frozen food to Amazon Pantry and Amazon Prime Now customers – including deliveries to some locations as quickly as under one hour, according to Morrisons is the UK’s fourth-largest supermarket retailer behind Tesco, Sainsbury’s and Asda.

Would Amazon partner with Woolworths?

It’s interesting that Amazon chose a mainstream UK supermarket to partner with, rather than discounters like Aldi or Lidl. Should Amazon decide to enter Australia in a similar capacity as the UK, you’d have to think that the company would also enter a partnership with Wesfarmers’ Coles, Woolworths Limited (ASX: WOW) or wholesale distributor Metcash Limited (ASX: MTS).

Part of Amazon’s strength comes from being able to negotiate cheaper prices from big brands like Kellogg’s and Colgate, rather than private label brands that dominate sales in the discount supermarkets. That’s likely one reason why the company has partnered with Morrisons in the UK.

Foolish takeaway

We are still undergoing a retail revolution – witness Amazon’s growth from a pure online book retailer based in the US to a fully-fledged global retailer with more than 480 million products sold in the USA, including the addition of more than 235 million in the past 18 months.

No wonder Mr Goyder has one eye on Aldi and the other on Amazon.

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Motley Fool writer/analyst Mike King owns shares in Wesfarmers and Woolworths. You can follow Mike on Twitter @TMFKinga

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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