Latest / Best of Business / Sam Dickie: Fisher Funds expert on Amazon's strategy for taking on the grocery market

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Sam Dickie: Fisher Funds expert on Amazon's strategy for taking on the grocery market · Best of Business

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  Speaker 1: You're listening to a podcast from News Talks B Follow
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  Speaker 2: Amazon has been massively scale scaling up its same day
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  Speaker 2: grocery delivery over the last few months, looking to be
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  Speaker 2: in about two and a half thousand US cities by
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  Speaker 2: year end. It's a strategic assault on our grocery market
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  Speaker 2: worth nine hundred billion dollars. Sam Dicky from Fisher Funds
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  Speaker 2: is with us to talk us through this.
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  Speaker 3: Hey, Sam, good eating here.
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  Speaker 1: Sam.
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  Speaker 2: How does Amazon's move change the competitive landscape?
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  Speaker 3: Do you think, Well, it's nailed everything else, hasn't It
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  Speaker 3: nailed the same day delivery of books in CDs, through
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  Speaker 3: the iPhones and everything in between. In grocery is the
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  Speaker 3: holy grail, partly because of the size of the market,
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  Speaker 3: like you said, nine hundred billion, but partly because it's
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  Speaker 3: the ultimate repeat purchase. We've all got to eat and
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  Speaker 3: it's been really hard. So delivering fresh groceries on the
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  Speaker 3: same day requires a really expensive, dense network of specialized
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  Speaker 3: refrigerated facilities, and this stuff perishes, so it has to
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  Speaker 3: be perfect. And we you and I have ultra low
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  Speaker 3: tolerance for soggy tomatoes, so we'd rather just go to
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  Speaker 3: the grocery store if it's not good enough, And the
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  Speaker 3: other thing is picking and packing the groceries can cost
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  Speaker 3: a grosser nine bucks, So if you think about it
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  Speaker 3: on one hundred dollars average basket size in the US,
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  Speaker 3: that leaves no profit margin. So same day delivery as
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  Speaker 3: a game changer. It more or less replicates that instant
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  Speaker 3: gratification that you and I get when we go to
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  Speaker 3: the supermarket.
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  Speaker 2: Now, what do you think this is going to mean
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  Speaker 2: for the traditional supermarket chains and the smaller regional players
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  Speaker 2: and everybody who's already doing this stuff.
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  Speaker 3: Well, Wall Street is describing the situation as guerrilla warfare,
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  Speaker 3: and so Amazon is leveraging it's sort of massive one
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  Speaker 3: kart advantage of it these other guys. So the consumers
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  Speaker 3: can buy three hundred and fifty million other Amazon products
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  Speaker 3: and their groceriy. So this is kind of devastating to
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  Speaker 3: companies like Instacart who just deliver groceries, or supermarket Kroger
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  Speaker 3: who just sell groceries. They can't leverage that other scale
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  Speaker 3: of buying all the other electronics alongside it, So they
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  Speaker 3: what does that mean? It means they can't match Amazon
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  Speaker 3: on price, and already since this happened a couple of
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  Speaker 3: months ago, Amazon's prices are seven percent below Walmart, sixteen
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  Speaker 3: percent below Kroger, and seventeen percent cheaper than Alberson's, which
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  Speaker 3: is another supermarket chain. And so far, so good, too sore,
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  Speaker 3: these low prices are meaning they're taking volume market share.
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  Speaker 3: So early pilots show that seventy five percent of users
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  Speaker 3: were first time Amazon grocery buyers, so they've been buying
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  Speaker 3: from someone else before and they will return twice as often,
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  Speaker 3: so they're using that massive scale to take market share
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  Speaker 3: as well.
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  Speaker 2: Now you've already got players doing grocery delivers as well
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  Speaker 2: or food deliveries. You've got Uber Eages, you got Instacart,
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  Speaker 2: all Dash and so on. So what about them?
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  Speaker 3: Yeah, well Instacart sort of fell out of bed on
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  Speaker 3: the day this was announced and hasn't recovered since because
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  Speaker 3: they're doing nothing but just delivering groceries and that that
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  Speaker 3: is a tough, low margin business, particularly when you can't
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  Speaker 3: leverage all those other products across it as well, like
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  Speaker 3: Amazon is now Instacart and sorry door Dash and Uber Eats.
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  Speaker 3: They obviously dominated the delivery of takeaways as being no
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  Speaker 3: issue there, but they had both expanded into into grocery
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  Speaker 3: delivery to sort of further bolster their revenues. But here's
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  Speaker 3: the rub that they're just into meteries charging grocers sort
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  Speaker 3: of fifteen to twenty five percent commissions, while Amazon is
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  Speaker 3: the platform, the logistics network, and often the the product
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  Speaker 3: grocery supplier as well. So door Dash and Uber Eats
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  Speaker 3: can't compete with that scale and full integration of Amazon.
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  Speaker 2: Right, So what do you reckon? This means for investors? Sam?
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  Speaker 3: I think it competitors without that scale, and it seems
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  Speaker 3: like the holy Grail is finally being found or cracked.
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  Speaker 3: Competitors without that scale, So Instacart, regional grosers that they
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  Speaker 3: will bleed and it's good for consumers of course over there.
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  Speaker 3: I mean, groceries are just going to get cheaper. And
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  Speaker 3: the other thing is you should look for, and we've
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  Speaker 3: seen this in Europe is these smaller grosers and regional
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  Speaker 3: grosers even national growth. As they face margin pressure, you'll
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  Speaker 3: see more sort of companies taking over other companies. And
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  Speaker 3: we saw that in Europe when that sort of grocery
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  Speaker 3: delivery market took off. Grocery m and a or mergers
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  Speaker 3: and acquisitions are up thirty one percent since then. And
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  Speaker 3: as always, the other thing is Amazon's actually playing a
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  Speaker 3: different game. It's not really that interested in the grocery
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  Speaker 3: margin itself. The kicker here is that Prime members, of
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  Speaker 3: which there's sort of two hundred million households in the
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  Speaker 3: US who are Prime members who pay one hundred and
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  Speaker 3: thirty nine bucks a year for all the Prime benefits,
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  Speaker 3: so the video, but also free free delivery, etcetera. They
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  Speaker 3: get free same day grocery delivery. So this is really
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  Speaker 3: the game for Amazon here is about locking those really
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  Speaker 3: valuable members in and making them stickier, and in the
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  Speaker 3: process they're going to sort of destroy a few grocers
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  Speaker 3: along the way.
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  Speaker 2: Interesting stuff. Hey, thank you very much.
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  Speaker 3: Sam.
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  Speaker 2: We'll talk to you in a week's time.
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  Speaker 3: Sam Dickey A Fisher funds.
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