Retail veteran Mark McInnes describes Amazon as the best retailer in the world.
So when the US giant plans to launch both an online grocery site and unusual bricksĀ and mortar stores in Australia within two years, the $90 billion-plus grocery industry takes notice.
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Australia's biggest supermarket chain Woolworths has set up a special unit to prepare for new players, describing Amazon as a "formidable competitor".
No. 2 chain Coles says it should have "lower distribution costs than anyone". Richard Goyder, the boss of its parent company Wesfarmers, said Coles needed to be just as prepared to battle Amazon as Wesfarmers had been to battle Woolworths' ultimately unsuccessful hardware business, Masters.
Woolworths and Wesfarmers have 43 per cent and 37 per cent market share of the $2.7 billion online grocery sales market, according to researchers IBISWorld. Aussie Farmers Direct, the premium fresh food delivery business that recently expanded into groceries, and dailyĀ dealsĀ site Catchoftheday.com.au, have less than 5 per cent market share each.
But it's a small and tough market, with researchers Roy Morgan noting that "buying groceries via the internet is an appealing idea rather than a reality for most consumers".
Glenn Carmody,Ā EYĀ consumerĀ and industrial products leader, said grocery home-delivery would grow from just 2-3 per cent of AustralianĀ salesĀ to about 5 per cent by 2020.Ā
"It will getĀ biggerĀ because the consumer will change.Ā The next generation will shop very differently to theĀ currentĀ generation. We're already seeing that āĀ theyĀ areĀ buying more regularly, they'reĀ picking up fresh stuff on the way home from work to cook that night so it's very much a just-in-time way of shopping."
![Aussie Farmers Direct CEO Keith Louie. AFD has less than 5 per cent market share.](/web/20161211053108im_/http://www.theage.com.au/content/dam/images/g/t/7/m/w/7/image.related.articleLeadwide.620x349.gh2bzw.png/1481255255035.jpg)
Nonetheless, Mr Carmody said retailers had yet to crack the magic formula for delivering across ourĀ big country, with its low population density and high wages.Ā
"They just can't afford to do it in its current form," Mr Carmody said. "That is the challenge for anyone looking to enter our market as well, is how do you build a cost-effective supply chain, logistics and distribution? It [Australia] is unique in terms of its size versus its population."
![Woolworths has set up a special unit to prepare for new players, describing Amazon as a "formidable competitor".](/web/20161211053108im_/http://www.theage.com.au/content/dam/images/g/l/x/a/4/c/image.related.articleLeadwide.620x349.gh2bzw.png/1481255255035.jpg)
AsĀ CitiĀ noted whenĀ writingĀ about Amazon's looming entry, "Amazon Fresh would be a disruptive force on the Australian grocery market, but developing the supply chain and dealing with Australia's lower capital city population density makes entry more challenging."
And oneĀ chief executive of a major Australian retailerĀ threw cold water on online grocery retailer taking off here because Australia lacks the cheap labour pool present in theĀ US.Ā
![No. 2 chain Coles says Amazon should have "lower distribution costs than anyone".](/web/20161211053108im_/http://www.theage.com.au/content/dam/images/g/s/b/f/o/x/image.related.articleLeadwide.620x349.gh2bzw.png/1481255255035.jpg)
It's unclear if even the big two chains make money from their online grocery sales. The figures are closely guarded.
Coles did not answer how many online customers it had or whether grocery home deliveries were profitable. Instead, it said "Coles Online achieved over 25 per cent transaction growth last financial year".
Woolworths said more than 1 million customers visited its supermarket website and app each week, and 4 million items wereĀ delivered to customers every week.Ā "We employ more than 3000 personal shoppers to hand-pick our groceries in stores right across Australia," a spokesman said.
One analyst said while Woolworths has previously said its home-delivery service was profitable, this is not certain now that online product prices are the same as instore prices.Ā Coles was profitable three to four years ago, the analyst said.
IBISWorldĀ saidĀ Australians had been slow to take on online grocery shopping, due to Woolies and Coles being in every town, and the consumer preference to inspect items such as fruit, vegetables, meat andĀ eggs,Ā andĀ high delivery fees or inconvenient delivery times.
Now people aged between 15 to 54 in Melbourne, Sydney and Brisbane are the biggest users of grocery delivery services,Ā orderingĀ bulk items such as snacks, flour and sugar, personal care and cleaning products, pet products, beverages,Ā IBISWorld said.
But overseas, things are moving quickly.
AsĀ EY noted in itsĀ recenātĀ RetailĀ reimaginedĀ report, big four chainĀ Sainsburys has become the first British supermarket toĀ trial aĀ one-hour home delivery service.
South KoreanĀ conglomerateĀ LotteĀ has introduce a drive-through online shopping scheme, as is common in continental Europe. And US giant WalmartĀ is testing whether drones can handle inventory at its large warehouses and has applied to US regulators to test home delivery and kerbside pickup.
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