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Analysis of the external Marketing Environment in the Australian fresh food retail industry has been conducted at both the macro and micro levels using a general summary, PEST, and finally a Porters 5-Forces Analysis. This is at Appendix 1. A summary of 5 key points that affect Amazons entry is provided as follows:

Population

Almost 30% of Australia's population is concentrated in two main areas. (ABS,2016)

• Greater Sydney is the most populated area in Australia (5,005,358) and has the second highest rate of growth behind greater Melbourne

• Greater Melbourne is the second most populated area in Australia (4,640,000) and has the highest rate of population growth

• Both these areas far exceed populations and growth rates in other states, particularly WA which has shown significant slowdown in growth.

This is important to Amazon's entry into the Australian fresh food retail industry as the lean cost structure model it has adapted in the US and overseas relies on large customer numbers to generate sufficient revenue. Having such large population centres potentially improves accessibility of the target market.

The Online Fresh Food Retail Market is not yet developed

Whilst the Australian fresh food retail industry is mature, and grows at a relatively slow rate (roughly 4% per annum) (IBISWorld, 2017) the online and delivery fresh food retail industry has not yet been fully developed.  

Despite Australians embracing the online shopping experience (Australia's online shopping is 7% above world usage) the uptake of online groceries has not been so comparable with only 18% of Australians having purchased consumable goods, such as food and wine online.  

From surveys (Nielsen,2016), the reasons for this are generally that:

• Only 17% of those surveyed believe the best groceries are online,

• Only 33% believe it actually saves time, and

• Less than 10% believe the quality is equal or superior to groceries purchased in stores.

The online industry is currently worth $2.7 billion annually with an expectation that this will increase to about $5 billion over the next five years. In the context of $105 billion in sales for the entire Australian fresh food retail industry this would seem a relatively small segment with growth potential.

This is important to Amazon's entry into the Australian fresh food retail industry as the company's core capabilities in the US and overseas are e-commerce, and the delivery of goods. This, therefore, is a potential market entry opportunity.

The Australian Fresh Food Retail Industry is a Highly Competitive Market

The Australian fresh food retail industry is highly competitive and highly concentrated with almost 80% of market share controlled by 4 major supermarkets (Roy Morgan Research, 2016).  Between these major supermarkets, there is a lack of perceivable differentiation due to the generic nature of the services and products provided. Therefore, competition is primarily based on price, and to a lesser extent other competitive factors include product choice and store location.

Woolworths is the current market leader with 33.6% of market share followed closely by Coles (Wesfarmers), and then Aldi.  These players have greater store size, increased retailer concentration, and the utilisation of a range of formats, which are now prominent characteristics of the Australian supermarket scene.

Essentially each of these companies are chasing the same work which has the capacity to reduce Amazon's power in the market.

This is important to Amazon's entry into the Australian fresh food retail industry as unless it chooses to exploit niche market areas of the industry, such as the online components, it will be directly competing on this playing field, and will not be able to leverage the economies of scale the established major players already have.  

Social Trends in Australia  

The two most significant social trends that exist within Australian society, and that have the potential to affect Amazon's entry into the Australian fresh food industry are as follows:

• Millennials, who are characterised by their engrained use of technology, are now entering the workforce, and ‘leaving the nest'. This could therefore signal an increase rate of growth in the online and delivery sector of the industry (Deloitte, 2017); and

• Consumer shopping habits are changing, characterised by the following:

o Differing from days gone by, the once a week shopping trip is now replaced by shoppers going to multiple times within a 7 days period

o 55.8% of those surveyed indicated High standards of food safety' as one of the factors that mattered most to them when supermarket-shopping; and

o 55.8% also indicated that a supermarket ‘close to home' is a significant factor of importance.

These are of importance as such information may determine which of the combination of available products Amazon brings to the Australian market.

Analysis of the Internal Marketing Environment

A summary of the internal marketing environment has been conducted generally, and using a SWOT analysis at Appendix 2. Those key points that affect Amazon's entry into the Australian fresh food retail industry are as follows:

Logistics is Amazon's core strength  

Amazon's core competency is that it has revolutionised the retail industry by using e-commerce and warehousing technology to provide a customer centric online shopping experience. Its frugal pursuit of for cost efficiencies has allowed Amazon to offer the lowest prices including from existing ‘brick and mortar' stores. The components of this core competency are largely its ability to source, warehouse and non-perishable items.  Amazon's success in the Australian fresh food retail industry is somewhat contingent on their ability to adapt this competency to the transportation of perishable goods.

Amazon's Innovation is a Strength

Amazon is a proven first mover (Prescott, 1977).  It has experience and competency in terms of developing and marketing innovative products and services. This is a considerable strength, and core strategy of Amazon. Within the fresh food retail market this innovation is already evident with the establishment of the AmazonGo trial store, that employs a cashier-less approach based on advanced technology (AFR,2016)  Such innovation is important for entering the Australian fresh food retail industry, as this is already a highly competitive market.

Amazon's ability to engage 3rd Parties is a Strength

Similar to its Amazon marketplace, AmazonFresh in the US is allowing users to place deliveries not only from Amazon, but also from local restaurants and shops through is website (AFR,2016). This ability to customise based on locality is an option other Australian supermarket do not offer, and has the potential to increase its customer base as this feature effectively and exponentially increases the variety of goods Amazon can sell, which is a great strength in meeting the perceived ‘gap' in convenience offered by online grocery sales in Australia if Amazon chooses to adopt this methodology.

Amazon has capital

As highlighted in the external marketing analysis section of this report, entry into the Australian fresh food retail industry has high barriers to entry based on the fixed costs necessary to establish logistic infrastructure. As an established and successful transnational company Amazon has this capital. In fact, behind Walmart, it is the world's second largest retailer.  In addition to establishing infrastructure Amazon works on small profit margins to maintain its customer first cost led strategy. This approach is one that has historically led Amazon to numerous short-term losses before market share increases and cost rationalisation through economies of scale has resulted in profit. Any establishment in Australia will therefore see the company vulnerable to external shocks and unexpected events in the marketplace during this growth period and any low demand for its products and services caused by changes in the external environment.  It will therefore need capital to cushion this effect.

No established infrastructure is a risk

Notwithstanding Amazon's ability to access capital, within Australia, Amazon does not have any established infrastructure or real estate whereas the other major players in the Australian fresh food retail industry do. If a ‘warehouse to home' strategy is adopted then to achieve this, significant warehousing will have to be obtained in areas that allow Amazon to maintain its fulfilment speed, and uphold its reputation. Similarly, a ‘brick and mortar' approach will need a store network established, which may only be possible through the purchase of an existing supermarket chain.

The Marketing Strategy

What is the marketing opportunity?

In consideration of both the external an internal marketing factors above, it is assessed that Amazon should consider the following market opportunities, namely

• The online fresh food retail ordering and delivery sector, and

• The convenience store retail sector.

Both of these markets have been selected on the basis of two strains of analysis, namely:

• A BCG Matrix analysis, and

• A Resource-based perspective analysis.

Each of these is discussed:

BCG Analysis

From the BCG Matrix analysis at figure 1 it can be seen that competing in the conventional fresh food retail market, Amazon would have low market share in a low growth industry essentially a ‘dog', and high risk.

Conversely however the online fresh food delivery and retail sector is a potentially high growth opportunity based on current revenue, and Amazon has low market share, a ‘question mark' worthy of further investment.

Figure 1

Resource Based Perspective

The fresh food retail industry within Australia, whilst a relatively low-growth market, can be considered in a state of change, owing to the following:

• The likely introduction of both Amazon, Kaufland, and Lidl into a highly concentrated marketplace, which has the potential to change the industry landscape; and

• The changing shopping patterns of Australians, and motivating factors, such as social responsibility, and a tendency toward organic healthy alternatives.

When the external environment is in a constant state of change then Grant (2010) suggests that the firm's own resources and capabilities are much more stable basis on which to define its identity.  In the context of the Australian fresh food retail industry, Amazons core capability is that it does online retailing and innovation exceptionally well.  

Accordingly, then, this drives the assessment to enter the convenience store market within Australia, despite it already being a low growth market with a number of existing players that hold market share. The AmazonGo concept is considered innovative enough to effect disruption, and obtain market share gain.  

Who are the Target Markets?

Location

Similar to its US, UK and Japanese business models, Amazons' ability to reach profit in the Australian fresh food retail industry is based on its ability to increase its customer base, and therefore reduce fixed costs, based on leveraging economies of scale. With this in mind, the two target markets recommended for Amazon are the Greater Sydney, and Greater Melbourne regions based on both current population and population growth potential. They are also the most concentrated population centres which improves accessibility of the targeted segments outlined below.

Segmentation

For Amazon's entry into the Australian fresh food retail market a multi-segmenting target selection approach is proposed with segments differentiated based on the likely benefits sought by each. The two main segments who's needs best align to the capabilities provided by Amazon subsidiaries are outlined below:

Double Income with Kids:

These are time poor consumers, who place value on convenience. The AmazonFresh subsidiary of Amazon is a solution for this market because of the easy ordering methods, and the time saved in not having to physically go shopping. These types of families spend about $16,100 (ABS, 2016) per year on consumable products, and are more likely to engaged in weekly planned purchasing.  Whilst cost is of concern, owing to increased cost of living (Appendix 1), convenience is the higher priority. This demographic will also purchase additional retail items serviced by Amazon such as cleaning products, home hardware items like light globes, and baby products.  

Employed Singles

This demographic are likely young millennials, who's use of technology is prolific.  They are likely to be city based. Similar to the ‘double income with kids' time savings are important and whilst they are completely comfortable purchasing online, their shopping habits are likely to be erratic, and anytime. On average, they spend about $7300 (ABS,2016)  per year on consumable products.  Convenience shop style shopping is likely to be prevalent for this demographic and therefore they are likely to service the AmazonGo subsidiary.

Demographic

Size Greater Sydney

Size Greater Melbourne

Potential annual Revenue

Double Income Kids

540,550 households

480,000 households

$16.4B

Employed Singles

655,000 people

650,000 people

$9.8B

Table 1

As can be seen in Table 1, combined, each of the segmented markets represent nearly one quarter of the Australian fresh food retail industry revenue, and therefore a marketing approach that initially targets these markets is considered feasible.

What is Amazon's Value Proposition?

Amazon's value proposition for its' target markets must align to their needs, or perceived needs.  Along with the considerations of the two selected segmented markets above Figure 2 below captures what needs have are not being currently met by the online fresh food

Figure 2

On this basis, the Amazon value proposition is defined is as follows:

• ‘That Amazon will provide absolute convenience how you want it'

o Delivery to your door fast (AmazonFresh)

o Walk in and Out (AmazonGo)

o Order and Pick up (AmazonFresh)

o A wide variety of products, further increased by the inclusion of 3rd Party Sellers, and Amazon.com products, all delivered at once.

o Tailored information and suggestions for your shopping based on your shopping profile.

• ‘That Amazon will provide the best value for money'

o Equal to the supermarkets - In line with Amazons customer first strategy

o Easily accessible Deals and online promotions

• ‘That Amazon will provide you the best quality'

o Hand-picked groceries

How will Amazon Position Itself?

To determine Amazon's positioning in the Australian fresh food retail market, the marketing mix format has been adopted, and used as a basis to identify proposals

Products

Variety

Amazon must have a large variety of goods that will satisfy the ‘one stop shop' convenience requirements of the consumers. They should stock both private label goods, as well as local items. Amazon should leverage off 3rd party sales using the e-commerce platform to ensure ‘absolute variety' that meets the customer needs and is an Amazon point of difference.  

Adaptive Stocking

A product mix for AmazonGo convenience stores should be refined based on users shopping habits in a particular area. For example, it is likely that a Melbourne City AmazonGo store may stock very different items than that of a store located in the Inner Western suburbs of Sydney.

Quality

Perishable goods must be of top quality and align to the consumers expectations. For example, a ‘nearly ripe' Avocado (if an option) must be exactly that consistently.  While such an example would appear semantic in nature, it is an identified reason for Australian consumers dissatisfaction with online fresh food shopping, and the slow uptake.

Price

Product Pricing

Amazon must compete with Woolworths, Coles, and Aldi on product prices for both AmazonFresh deliveries and AmazonGo.  Whilst both the target markets are likely quality focussed, there must be an incentive for these consumers to shift, and break their established habits. Comparable pricing will contribute to generating this ground wave.  

Membership Pricing

When considering a penetration, or skim pricing strategy for membership sales on delivery, a penetration pricing strategy is likely more appropriate. Amazon is not the first player in online grocery sales in Australia, and higher pricing has been identified as reason for not adopting online purchasing of fresh food.  Amazon's focus is on growth, and not short-term profit. Accordingly, a short-term loss based on cheaper membership pricing is recommended. A $99 membership price (including access to standard Prime delivery) would be considered a price that represents value for money plus decreasing individual delivery fees based on the frequency the service is used (not exceeding $5-6).

Non-Membership Pricing

Figures consistent with existing supermarkets offerings for delivery are recommended. These are generally about $15 per delivery reducing proportionally based on the amount spent. It is assumed that 70-80 percent of customers are unlikely to be members in Amazon's first year of operation.

Promotion

Break consumers Habits

Promotion and advertising activities must target those consumers that have not thought about, or are comfortable maintaining ‘brick and mortar' shopping habits. It is likely that those consumers with positive preconceptions, or previous experience with online shopping will likely not need persuasion. In line with the value proposition, this advertising should stress equal product prices, the absolute convenience that both AmazonGo and AmazonFresh can offer, and elude to the fact that local products and business are supported.

Television advertising across major TV networks during prime time would seem an effective strategy that could build awareness. The Amazon Fresh trucks will also generate awareness as consumers begin to see more of them on the road.

Trial Usage

To encourage consumers to trial AmazonFresh, one week's free delivery could be offered.  The afore mentioned TV advertising could highlight this promotion, and location based advertising within the main Amazon marketplace could further refer to these promotions.

Social Media Management. Social media should be used to engage with consumers, and customers should be encouraged to “share” their Amazon Fresh experiences with friends and families. Social contests for a free membership or other prizes can be used to generate buzz.

Referral rewards

After new customers set up an account, they are asked to invite others to try the service at a discount ($10 off an order of $50 or free delivery). If any of their referees use the invitation to create an account, the original customer will also receive a discount on their next order. This strategy was also successful for Uber and Lyft, two companies that disrupted the taxi industry with an innovative, tech-enabled model.

Place

The target locations for Amazon's entry into the Australian fresh food retail industry have been have been identified as the greater Melbourne and Greater Sydney regions based on them being major population centres. AmazonFresh, as a direct-to-consumer model, will need to consider locations of the fulfilment centres to maximise delivery speeds, and leveraging on economies of scale. Conversely, AmazonGo stores should aim for areas in areas of large concentration of the ‘single employed' demographic selected

Marketing Goals and Metrics

Goal

It is aimed that Amazon will achieve a membership of 250,000 by year 3 of operation, and have obtained a positive operating Margin based on the reduction of variable expenses. This will be possible because of leveraging economies of scale.

Metrics

The two different metrics selected for gauging Amazon's success in the Australia fresh food retail industry are primarily the number of memberships, and the Amazon operating margins.

Whilst no formal sensitivity analysis has been done on these metrics, the number of customers and rate of growth should be an accurate indication of the customer service being provided and market gain obtained by Amazon in the Australian fresh food retail industry.

Similarly, the operating margin is a ratio of EBIT/revenue which should measure the amount Amazon has increased its economy of scale, and efficiencies as revenue increase.  Over a 3-year period

Metric

Year 1

Year 2

Year 3

Number of Memberships (prime fresh)

100,000

200,000

250,000

Operating Margin

-

0

+

Reference List

1. Australian Bureau of Statistics Demographic Statistics September 2016, Accessed at http://www.abs.gov.au/ausstats/[email protected]/0/BCDDE4F49C8A3D1ECA257B8F00126F77?Opendocument on 4 Jun 2017

2. Deloitte, Jan 2017 The Deloitte Millennial Survey 2017, accessed at https://www2.deloitte.com/global/en/pages/aboutdeloitte/articles/millennialsurvey.html 1 Jun 2017

3. IBISWorld , 2017,  Supermarket and Grocery Stores in Australia accessed at https://www.ibisworld.com.au/industry-trends/market-research-reports/retail-trade/food-retailing/supermarkets-grocery-stores.html 4 Jun 2017

4. Grant, R.M., 2010. Contemporary Strategy Analysis. Concepts, Techniques, Applications, seventh ed. John Wiley & Sons, Oxford, UK.

5. Nielsen's 2016 Global Connected Commerce Report accessed at http://www.nielsen.com/us/en/insights/reports/2016/global-connected-commerce.html on 3 Jun  2017-06-13

6. Porter, M.E., 1980. Competitive Strategy: Techniques for Analyzing Industries and Competitors. Free Press, New York.

7. Prescott, E. and M. Visscher. ‘Sequential location among firms with foresight', Bell Journal of Economics, 1977, pp. 378–393.

8. Roymorgan Research, April 2016, Sweep, Aldi's Market Share of Aussie Market Still Rising http://www.roymorgan.com/findings/6762-supermarket-sweep-aldis-share-of-aussie-market-still-rising-201604142258

9. Schmalensee, R. ‘Economics of scale and barriers to entry', Journal of Political Economy, 1981, pp. 1228–1238.

10. Wernerfelt, B., 1984. The resource-based view of the firm. Strategic Management Journal 5 (2), 171–180.

11. Yoo, T. Colgan,P Jan 2017 The Amazon grocery service posing a new threat to supermarkets has been hiring in Australia for a year TECH INSIDER accessed at https://secure.gravatar.com/avatar/1297f290e355664d675fb4d28714bf5d?s=32&d=mm&r=g

APPENDIX 1

Analysis of the External Environment

Overview

General

A first step in developing a marketing strategy for Amazon is an understanding of the current Australian fresh food retail industry Landscape. What does this look like?

As of last year, the industry was worth $105bn annually, categorised according to Figure 1

Provide an analysis of the external marketing environment currently facing Amazon.com when considering the Australian Fresh Food market;

For both External and Internal Analyses:

• Identify and describe the five most

important issues relevant to the current situation from the external environment AND internal environment.

This should include descriptions of

This market grows at 4.5% per annum, driven by demand correlated to population growth, so the primary factor to consider is that Amazon's entry would largely be accessing a portion of this existing market.

The Online Fresh Food Retail Landscape

Whilst Australians have embraced the online shopping experience (7% above world usage) the uptake of online groceries has not been so comparable with only 18% of Australians having purchased consumable goods, such as food and wine online.  Why is this the case? Nielson reports the following key points

• Only 17% of those surveyed believe the best groceries are online,

• Only 33% believe it actually saves time, and

• Less than 10% believe the quality is equal or superior to groceries purchased in stores.

As can be seen in Figure 4, Australia's and the US agreement with the motivating questions asked in the Nielson survey is significantly less than the global belief. Qualitative statements that encapsulate this concern are as follows:

• Heavy saturation of ‘bricks and mortar' stores in city areas which tend to meet the convenience requirements of consumers;

• delivery times tend to be inconvenient in terms of when you need to be home to pick up

• Australians consumers want certainty on quality.

Whilst there are these concerns, over the past five years there's been about 16 per cent annual growth in the online grocery sector. It has doubled in size from about $1.3 billion to $2.7 billion with an expectation that this will increase to about $5 billion over the next five years. In the context of $105 billion in sales for the entire industry this would still seem relatively small.

Figure 4

If Amazon chooses to access this market, there a number of key macro factors to consider that have been addressed below using a PEST analysis.

PEST Analysis of External Marketing Environment – Macro Environmental Factors

Political  

How do legal issues and government regulations affect the probability of Amazon being successful and profitable in the Australian Fresh Food Retail Market?

Food labelling laws and policy within Australia would seem the only political or legal consideration for Amazon entry into Australia, as the mechanics of compliance may introduce additional costs for imported products.

Australia's ‘Common Law' legal system, social democracy political systems, and 3rd party organisations such as the Australian Retailers Association (ARA) are not of significant concern to Amazon decision to enter the Australian Market. In actual fact, these entities and systems promote business growth, so this may be of benefit.

Economic

This factor focuses on those important economic aspects within Australia and determining whether or not they can play a role in the success of Amazon within the Australian fresh food retail market.

Some economic factors which would may influence consumer confidence and consumer spending over the next few years include:

• A generally increased rate of Australian household incomes and savings;

• Conversely, a generally increased cost of living and housing particularly in city areas;

• Current Lower Oil prices which is expected to remain constant;

• Declining rate of Australian GDP growth over the last 3 years is expected;

• High levels of household debt which is continuing to worsen;

• Inflation rate of Australia low but slowly increasing; and

• High unemployment, which is slowly decreasing.

The increase in household incomes would seem to be negatively offset by the higher cost of living, and growing household debt in recent years. This will likely have a negative impact on consumer spending patterns. The increasing trend for inflation will also place upward pressure on Australia's interest rates which will also likely negatively impact consumer spending.

What do these factors mean in the context of Amazon? The fresh food retail market can be considered a non-discretionary expense for consumers, and previous analysis has shown that in times when financial conditions are more difficult, then the relative importance of ‘eating out' declines, and the ratio of ‘eating at home' expenditures to ‘eating out' goes up sharply.  Therefore, it could be hypothesised that the current and mid-term expected financial climate may actually increase grocery spending.  

Social

This section examines the cultural and demographic aspects of Australia to determine whether Amazon can compete in the Australian Fresh Food retail market. This factor will help assess consumer needs as well as the things which compel them to make a purchase. Age distribution, lifestyle changes, population growth, demographics, environmental, health and educational consciousness are some important issues that could be considered.

Population

Australia's population is currently 24.13 million and continuing to grow. Projections by the Australian Bureau of Statistics are that by 2031 it is expected to grow up to around 25 million. Significant points as follows:

• Greater Sydney is the most populated area in Australia (5,005,358) and has the second highest rate of growth behind greater Melbourne

• Greater Melbourne is the second most populated area in Australia (4,640,000) and has the highest rate of population growth

• Both these areas far exceed populations and growth rates in other states, particularly WA which has shown significant slowdown in growth.

As a non-discretionary expense, population growth drives the overall growth in the Australian Fresh Food retail market.  Currently sitting at $105B, the current rate of population growth is expected to increase this market by 4.5% per annum.

Consumer Trends

According to two major market research companies the following are key points about Australians shopping habits that are applicable to Amazon:

• Differing from days gone by, the once a week shopping trip is now replaced by shoppers going to multiple times within a 7 days period;

• 55.8% of those surveyed indicated High standards of food safety' as one of the factors that mattered most to them when supermarket-shopping; and

• 55.8% also indicated that a supermarket ‘close to home' is a significant factor of importance.

Technological

This section looks at those technological factors which affect the means by which Amazon Fresh can bring its products to the Australian Fresh Food retail market. The technology available can either make it easy or tough enter the industry. Therefore, things such as government expenditure on technology, technological advancements, and lifecycle of technology available, as well as the role of internet and the changes to it could be considered.

Technology is a major variable which has the capacity to influence the introduction of Amazon Fresh into the Australian market. New technologies, most of which Amazon have pioneered can benefit both customers and the company. Significant uses for technology can be as follows:  

• Increasing customer satisfaction because goods are readily available;

• More personalised shopping experience for customers;

• More effective management of food supply chains

Amazon Fresh stores can achieve these outcomes with the following technologies:

• Wireless devices

• Intelligent scales

• Electronic shelf labelling

• Automated checkout systems  

• Radio Frequency Identification (RFID).

Porters 5 Forces Analysis of External Marketing Environment - Micro Environmental Factors

Porter\'s Five Forces model, has been used to analyse the Australia fresh food retail industry in order to determine potential weaknesses and strengths for Amazon, and likely areas of profitability. Analysed factors include:

• Competition in the industry;

• Potential of new entrants into the industry;

• Power of suppliers;

• Power of customers;

• Threat of substitute products.

Competition in the Industry

The Australian fresh food retail industry a mature, flat market where growth is difficult. It is highly competitive and highly concentrated with almost 80% of market share controlled by 4 major supermarkets (Figure 2). Between these major supermarkets, there is a lack of perceivable differentiation due to the generic nature of the services and products provided. Therefore, competition is primarily based on price, and to a lesser extent other competitive factors include product choice and store location

Woolworths is the current market leader with 33.6% of market share followed closely by Coles (Wesfarmers), and then Aldi.  These players have greater store size, increased retailer concentration, and the utilisation of a range of formats, which are now prominent characteristics of the Australian supermarket scene. Essentially each of these companies are chasing the same work which has the capacity to reduce Amazon's power in the market.

Figure 5

.

The disposition of the current ‘brick and mortar' stores is logically correlated to the population centres around the country and can be seen in figure 3.

Figure 6

Potential of New Entries into the Market

The threat of new entrants to the Australian grocery market is low. Potential entrants to the Australian grocery market must compete with large economies of scales of the afore mentioned major players. Accordingly, the investments in infrastructure, and facilities is massive, and the expertise to manage them specialised.  As a result, very few firms have the expertise or resources required for such a significant undertaking. The few notable exceptions have been:

Aldi

The introduction of Aldi 5 years ago, significantly altered the Australian fresh food retail industry. Its source of competitive advantage has been its discount private-label products, and it has forced both Woolworths and Coles to cut prices and expand their private-label product ranges. Smaller competitors such as Foodworks have suffered market share, and in addition, industry-wide profit margins have fallen over the past five years as they reduced prices and accepted lower margins to stay competitive; and

Costco

Costco similarly has disrupted the industry through its introduction of a member based offering, and a much wider range of products than the current supermarket duopoly in its seven stores, including clothing, televisions and other appliances. Similarly, but for different reasons, Costco's bulk-buying power has allowed it to compete on the basis of low prices through ‘bulk' purchasing.

In the future, however, that in addition to Amazon, there is evidence to suggest that German Hypermarkets Kaufland and Lidl, will attempt entry into the Australian market. This is of significance to Amazon.

Power of Suppliers

The power of suppliers in the Australian fresh food retail industry is considered low. Major supermarkets hold the balance of power in the grocery supply chain owing to the fear the suppliers have of losing their business to the large supermarkets which therefore consolidates the leading positions of stores like Woolworths, Coles and Aldi in negotiating better promotional prices from suppliers that small individual chains are unable to match Ritz (2005).

Australian based suppliers are also threatened by the ability of these large chains to source their products from overseas at a cheaper price. Such forces of competitive rivalry have reduced the profit margins for supermarket chains and suppliers.

Power of Customers

The power of customers in the Australian fresh food retail industry is considered high.  Porter believes that the more products that become standardized or undifferentiated, the lower

the switching cost, and hence, more power is yielded to buyers (1980). Groceries stores and supermarkets are generally standardised with most containing similar products. The likelihood of customers switching their store remains prevalent.  

With this in mind, the membership based approach adopted by Amazon (Prime and PrimeFresh) is an effective customer retention strategy that significantly reduces the likelihood of switching. It provides Amazon the capability to personalise its approach to customers, meet their needs more effectively, continue to offer choices in demands, and also maintain a constant flow of promotions which also assist retaining their customer base.

Threat of Substitutes

The threat of substitutes in the fresh food retail industry is high. Entering this market, Amazon faces many ‘substitute' stores, or indirect competitors such as local corner stores, speciality food stores, and fresh food markets. These indirect competitors are viable substitutes especially as smaller type convenience stores are expanding as ‘one stop' shops in suburban areas.

A summary of the analysis above therefore paints the fresh food retail industry as only moderately attractive for Amazon to enter. The main reasons for this would be the increase in bargaining power of suppliers and buyers, along with the greater intensity of industry rivalry particularly with the consideration of Kaufland and Lidl considering entering the market.  This is shown in figure 3.

Figure 7

In order for Amazon obtain a competitive advantage in this industry it will need to rely on its resources and capabilities to obtain competitive advantage.

APPENDIX 2

Analysis of the Amazon Internal Marketing Environment

The following provides an analysis of the strength and weaknesses associated with Amazon's internal marketing environment in the context of entering the Australian fresh food retail industry. A SWOT analysis based on this information and considerations of the external marketing environment is shown in table

Strengths

Logistics

Amazon's core competency is that it has revolutionised the retail industry by using e-commerce and warehousing technology to provide a customer centric online shopping experience. Its frugal pursuit of for cost efficiencies has allowed Amazon to offer the lowest prices including from existing ‘brick and mortar' stores. The components of this core competency are largely to its ability to source, warehouse and non-perishable items.  

Innovation

Amazon is a proven first mover.  It has experience and competency in terms of developing and marketing innovative products and services. This is a considerable strength, and core strategy of Amazon. Within the fresh food retail market this innovation is already evident with the establishment of the AmazonGo trial store, that employs a cashier-less approach based on advanced technology.

Company Leadership

Jeff Bezos, exerts a charismatic and unique influence within Amazon, His steadfast view on long term strategic positioning has seen Amazon adopt a number of strategies that in the short term have resulted in losses, but ultimately led the company to where it is today. This visionary leadership is considered an asset to Amazons entry into the Australian fresh food retail market.

Lean Cost Structure

Amazons main source of advantage in its existing markets is its lean cost structure, and ability to leverage of economies of scale. This has been largely achieved in its logistics and distribution using technology within its fulfilment centres. For this to remain an existing strength, similar infrastructure must be established in Australia

Customer Relationship Management (CRM)

Amazon e-business IT support Amazon's prime mission which is ‘putting the customer first'.  Amazon carefully records data on customer buyer behaviour which has allowed them to offer individuals specific items, or bundles of items, based upon preferences demonstrated through purchases or website search histories and trends. This strength is directly applicable to the fresh food retail industry.

3rd Party Involvement

Similar to its Amazon marketplace, AmazonFresh in the US is allowing users to place deliveries not only from Amazon, but also from local restaurants and shops through is website. This ability to customise based on locality is an option other Australian supermarket do not offer, and has the potential to increase its customer base as this feature effectively and exponentially increases the variety of goods.

Amazon has capital

As highlighted in the external marketing analysis section of this report, entry into the Australian fresh food retail industry has high barriers to entry based on the fixed costs necessary to establish logistic infrastructure. As an established and successful transnational company Amazon has this capital. In fact, behind Walmart, it is the world's second largest retailer.

Weaknesses

No established infrastructure

Within Australia, Amazon does not have any established infrastructure or real estate whereas the other major players in the Australian fresh food retail industry do. If a ‘warehouse to home' strategy is adopted then to achieve this, significant warehousing will have to be obtained in areas that allow Amazon to maintain its fulfilment speed, and uphold its reputation. Similarly, a ‘brick and mortar' approach will need a store network established, which may only be possible through the purchase of an existing supermarket chain.

Thin Profit Margins

Amazon works on thin profit margins to maintain its customer first cost led strategy. This approach is one that has historically led Amazon to numerous short-term losses before market share increases and cost rationalisation through economies of scale has resulted in profit. Any establishment in Australia will therefore see the company vulnerable to external shocks and unexpected events in the marketplace during this growth period and any low demand for its products and services caused by changes in the external environment.

Threats

Online Security

Threats to online security is a permanent threat to Amazon, as well as, other businesses operating in online retail and e-commerce industries. There is a risk for the Amazon system to be hacked by various parties with potentially severe implications on multiple levels.  This effect is important because of Amazon desire to further base its operations on its e-commerce platforms.

Loss of Bezos

Amazon is faced with a threat of losing certain portion of its market share after its founder and CEO Jeff Bezos has to step down from the leadership position in the future. The company owes the most parts of its current success to the abundant creativity and visionary leadership of Jeff Bezos and his departure from the leadership role may be followed by a decline on company revenues and market share.

Existing and Future Competitors

As previously outlined, not only is the Australian food retail industry highly concentrated with existing and establish ‘brick and mortar' players, but hypermarkets giants such as Klaufhouse and Lidr are a high likelihood of entering the market, and are likely to target the same markets and will be direct competitors to Amazon.

Opportunities

Target Market Gains in the Online fresh food retail market

The core strengths of Amazon are suited to exploiting the online fresh food delivery business. This represents an underdeveloped market that is yet to gain real popularity in Australia.

Target Market Gains in the Grocery Store Market

Australian fresh food shopping trends are changing to more frequent on demand style shopping trips. The innovative approach of the AmazonGo concept, is potentially a disruptor to this market. The customer data used can personalise stores based on purchaser trends in each locality.

AMAZON SWOT ANALYSIS

Strengths

• Logistics

• Innovation

• Company Leadership

• Lean Cost Structure

• Customer Relationship Management (CRM)

• 3rd Party Involvement

• Amazon has capital

Weaknesses

• No established infrastructure

• Thin Profit Margins

Opportunities

• Target Market Gains in the Online fresh food retail market

• Target Market Gains in the Grocery Store Market

Threats

• Online Security

• Loss of Bezos

• Existing and Future Competitors

Table 2

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