Amazon grocery fears overdone: report

Simone Ziaziaris
(Australian Associated Press)

Amazon’s recent $18 billion bite into the United States grocery sector is unlikely to signal what it has in store for major Australian supermarket chains, a new analyst report says.

The retail giant, due to arrive in Australia in the next 12 months, surprised markets on Friday when it bought US grocery store operator Whole Foods in a deal valued at about $US13.7 billion ($A18 billion)

Australian investors reacted on Monday by selling down major retail stocks, with Woolworths down almost four per cent and the consumer staples sector down by around 1.4 per cent.

However Citi analyst Bryan Raymond says Amazon’s influence in Australia’s grocery industry is likely to be small and the online retailer is unlikely to follow up with a major grocery retailer purchase in Australia.

Mr Raymond said an acquisition of major supermarket chains Woolworths or Coles is doubtful given cost of any such deal against the broader market opportunity.

“Amazon will be disruptive to all retailers when it enters Australia,” Mr Raymond said in a report released on Monday.

“However, access to product and distribution points will determine its success, particularly in grocery.”

Mr Raymond said Amazon’s penetration into the grocery market is likely to be small and its pricing at a level above the big supermarkets as it had previously taken a “premium” approach to grocery selling.

“As a result, we see less risk to Coles and Woolworths from Amazon than discretionary retailers,” he said.

IGA supplier Metcash is also not an expected takeover target, Mr Raymond said, due to Amazon’s Whole Foods acquisition being about securing a retail footprint in the US – a move it is not expected to replicate in Australia.

“Whole Foods provides Amazon with a (primarily leased) 460 retail store footprint across 42 US states, serving as distribution points and pick-up locations,” Mr Raymond said.

“In our view, this acquisition is not about access to product.”

Citi calculated that the Whole Foods purchase is equivalent to buying a 34 store, $1.5 billion turnover business in Australia – something half the size of the Ritchies IGA supermarket business.

Australian Stock Report chief market strategist Chris Conway said while Amazon’s US deal highlights its desire for a big presence in groceries, a similar deal in Australia is “a long way off – if viable at all”.

“I think a lot of people will realise that the current fear surrounding the competition Amazon will bring, and a subsequent sell-off in some retail stocks, is perhaps a bit overdone,” he said.


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