Is Amazon a Threat to the Canadian Grocery Industry?

Is Amazon a Threat to the Canadian Grocery Industry?

Canadian Grocer Blog Entry: November 4, 2013 (here)

On October 31, 2013, it was announced that Amazon is entering into the Canadian grocery market by offering 15,000 dry grocery and gourmet food items on its popular Amazon.ca online store.  The products available include packaged beverages, breakfast foods, snack foods, natural and organic foods, candy and chocolate, and gourmet gifts. 

I decided to go to the Amazon.ca web site to see for myself and indeed there are plenty of dry grocery products for sale there.  Canadians must have disposable incomes that are substantially higher than the rest of the world based on the prices that were on-line as of November 2, 2013.  By way of example:

1. Nestle Pure Life Bottled Water 24 EA/CT sells for $598.40 on sale down from $807.12.  This rare liquid must be from the fountain of youth.  Hopefully this is a flaw with their automated dynamic pricing system
2. Bottled Spring Water, 1 Liter, 12 Bottles/Carton sells for a more reasonable $44.95 per carton for a much more affordable $3.75 per litre.  Ouch!
3. Pepsi Mini Can (6 Pack of 237ml Cans) (Pack of 4) sells for $11.99 which is close to double the price of my local flier which sells the larger format Pepsi 24/355ml for $6.49
4. Schweppes Indian Slimline Tonic Water 12 X 150ML sells for $24.99 or $2.08 per unit.  Now I like a good gin and tonic from time to time but isn't this a tad expensive?
5. Orville Redenbacher's Kernels Original (Pack of 12) sells for $51.48 which works out to $4.29 per unit - not bad but that’s a lot of popcorn to have to buy
6. Kellogg's Crunchy Nut Golden Honey Nut Cereal 14.1 oz sells for $9.99

These are just a few random items that I picked while clicking through the Amazon.ca site in order to write this blog posting based on fact-based information.  As can be expected these prices will be adjusted over time as Amazon is particularly good at this.  Needless to say, after doing my homework I have come to several conclusions that I thought I would share with all Canadians.

1. Canadians make up a small population of people who live across a vast terrain that is logistically expensive to service.  Shipping food products to end-consumers by parcel courier across the nation is not viable or profitable which is why regional food distribution centers are positioned closest to our major metropolitan population centers.
2. Canadians are a highly taxed population who are forced to stretch our dollar much further than neighbors in the United States.  In general, Canadians are very price sensitive when it comes to food spending which is why the country has a fiercely competitive grocery market.  There are very few Canadians who can afford to click and buy food items by the unit or by the case with little or no concern for the price being paid.
3. Many Canadians (not all) will gladly buy in bulk which is why Costco parking lots are packed every weekend across the country. Canadians love to save money, even if it means that they need to forward buy inventory for the next 3 months.  But they will only do so if there is a price savings to be had (perceived or real).  Canadians will generally not buy dry goods by the case unless there is a significant price or convenience incentive to do so.
4. The grocery retailers in Canada do not enjoy absolute loyalty from customers.  In many households, shoppers from all income levels scour through weekly fliers to determine where to spend their hard earned money.  It goes back to stretching their dollars so that they can raise their families or afford the odd luxury if they have extra disposable income.  Canadian grocery retailers have to work continuously to keep costs down so that they can remain competitively priced, especially as the market has become more crowded than ever.

All this to say that the Amazon’s entry into the Canadian Grocery market is not something that is a major threat.  Yes it is true that this company is on a tear and is putting up new distribution centers in the USA and around the world at an unprecedented pace.  Yes Amazon has completely disrupted other industries such as books and recorded media.  Yes Amazon is the darling of Wall Street with a stock price that continues to escalate despite its track record of not generating sustainable profits.  Yes Amazon has the ability to cause significant damage to the Canadian retail scene, but I believe that this damage will not be in the grocery industry.  Canadians want fresh food at great prices and with their long winters it is actually a pleasure to get out of the house for any reason, even if it means going to the supermarket.

Truth be told, the real challenge to the Canadian retail market coming out of Amazon’s announcement is that the company will add 200,000 automotive items such as seat covers, windshield wiper blades and automotive tools and equipment.  If Amazon can supply Canadians with competitive prices and good service levels for these product lines then this represents a very serious threat to Canadian Tire.  Amazon is a $71 Billion (2013 sales) juggernaut with ecommerce technology capabilities that are light years ahead of all other retailers combined and their dynamic pricing capabilities will create significant profit turmoil for Canadian Tire which is a $9 Billion company that has been serving Canadians since 1922. 

Marc Wulfraat is the President of MWPVL International Inc.  He can be reached by clicking here.  MWPVL International provides supply chain / logistics network strategy consulting services. Our services include: supply chain network strategy; distribution center design; material handling and automation design;  supply chain technology consulting; product sourcing; 3PL Outsourcing; and purchasing; transportation consulting; and operational assessments.