Online grocery shopping poses a completely different set of challenges and Jeff Bezos was clever enough to avoid it until AmazonFresh was launched in 2007
The story of how Amazon started in a garage in Seattle in 1994 to become the world's most valuable company is well-known. It's also easy to assume that the e-commerce behemoth was also a pioneer in online grocery shopping, but it was not.
Online grocery shopping poses a completely different set of challenges and Jeff Bezos was clever enough to avoid it until AmazonFresh was launched in 2007.
Even then, Amazon treaded cautiously, and its reach was limited. Dealing with perishables is a logistical nightmare.
Having large numbers of refrigerated warehouses close to customers is but one basic requirement. It also requires very different web design and user interface to the one Amazon already had due to high-frequency purchases usually in larger numbers than is typical for other products sold on Amazon.
The grocery business is also infamous for its wafer-thin margins. Digital grocery pioneers like Webvan and HomeGrocer had already burned through billions and shut shop for over five years by the time Amazon came into the scene.
It was not until Amazon bought Whole Foods for USD 13.7 billion in 2017 that it is fully committed to the online grocery business. Despite Amazon's involvement, Whole Foods is not yet profitable.
Whole Foods CEO John Mackey was infamously quoted in 2015 as saying that Amazon's move into grocery delivery would be "Amazon's Waterloo."
So why is Amazon taking the risk with online grocery shopping?
The US grocery market is worth USD 800 billion. For comparison, Amazon's annual revenue today is USD 233 billion. Of this, only 2% of grocery purchases are made online as compared with 20% for overall retail spending.
In addition, families go to supermarkets at least once a week because cheese, milk, toilet paper, and laundry detergent cannot be stored for long or are consumed quickly. Amazon believes that the next frontier for them is to be in the front and centre of everyone's daily lives.
If they manage this, it could lead to the next growth surge for Amazon. Asia is not far behind the US in online grocery shopping. In some countries, it may even be ahead.
In a report published earlier this July by Institute of Grocery Distribution (IGD) Asia, online grocery shopping in the top 12 grocery markets in Asia is forecasted to grow from USD 99 billion today to USD 295 billion in 2023.
The annual compounded growth rate (CAGR) is an astounding 24.4% compared with 6.2% for the overall grocery retail market. IGD also forecasts that online will account for 7.6% of total grocery retail sales in Asia by 2023, more than doubling its current market share.
Top 12 grocery markets in Asia include India, China, Taiwan, South Korea, Japan, Indonesia, Thailand and Singapore.
IGD is a UK not-for-profit research and training organisation and Singapore is where IGD Asia is based. It has a trading subsidiary that provides commercial insight services for the consumer goods industry.
Its commercial business helps fund not-for-profit activities.
In the report, India is cited as a market that is forecast to grow very rapidly over the next five years due to a combination of retailer investment, better infrastructure, new payment solutions and a large population.
Foreign companies like Amazon, Walmart and Alibaba are expected to drive online growth through strategic partnerships.
According to eMarketeer, India e-commerce market is expected to more than double from the current USD 32.7 billion to USD 71.9 billion in 2022.
However, what may temper this growth is government regulation imposed this year to protect local retailers. The new rules will ban e-commerce companies such as Amazon from selling products from companies in which they own an equity stake.
Furthermore, the rules will prohibit e-commerce companies from entering into exclusive agreements with sellers.
South Korea is quoted as the most advanced online grocery market in Asia in the IGD report. However, growth in South Korea will slow down.
While China will strengthen its position as Asia's largest online grocery market with sales reaching USD 205 billion in 2023, India, Thailand and Indonesia will be the fastest growing albeit from a low base.
Shirley Zhu, Programme Director at IGD Asia, said, "The penetration, size and growth of online grocery vary greatly by country. South Korea, China and Japan will be the most established online grocery markets in terms of both market share and scale, while Singapore and Taiwan will also have well-developed online grocery channels by 2023, benefiting from existing infrastructure and retailer investment.
Markets in Southeast Asia will see some of the fastest growth, but the market share of online grocery here will remain small. Markets such as India and Indonesia will also become increasingly important due to their scale."
Zhu further added that there are huge opportunities for suppliers to online grocery channels but they will have to prioritise where to invest as each market is different and each requires a different strategy.
Knowing the online retailers well and keeping up with trends, technology and payment systems will be key to being successful.
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