Earlier this week, I posted about why I jumped into WOW - that reason being their big potential in growth by expanding into the China market.
I now want to discuss the viability of Amazon's threat to Woolworths Limited. Yes, I don't argue that Big W won't be severely affected. In fact, my opinion is that this division of Woolworths has not made any decent returns to Woolworths that perhaps, pulling the plug might actually save the company money. My opinion is that of the
threat of Amazon to Woolworths Limited has been overexagerated.
Why?
Amazon is a really successful company and if you ask anyone, they'd agree. But their track record does not stem from selling groceries, a market that Woolworths and Coles have long been living and breathing. Instead, they stem from online sales. Only recently did they acquire Whole Foods, and the acquisition itself has it's own problems that Amazon must focus on before they even think of jumping into other international markets. It will probably be years before we see Woolworths Limited fall (if ever) to the mighty Amazon, and by that time, Woolworths would've built a big defence for Amazon (unless the Woolworths leadership team are being paid ridiculous amounts to be stupid).
Assuming the best case scenario for Amazon (that they successfully acquire Whole Foods and that they overcome the usual culture alignments, and other issues that arise from acquisition), Amazon then needs to determine the viability of jumping into the Australian grocery market. Will online shopping actually provide Amazon the competitive advantage here? Think of all the apartments that are being built around in the city. As the average population density of Australian suburbs increase, the viability of online shopping becomes less and less valuable.
Basically I'm asking myself...
- Why would you order groceries online when you can go downstairs of your apartment and pick them up (whilst also having the extra benefit of being able to inspecting your goods before you buy) from your local supermarket?
- Furthermore, why would Amazon deliver groceries when the congestion within residential areas continue to worsen?
Both these factors will deter Amazon from entering into the Australian grocery market through the online shopping channels, and they would probably be better off using their time and resources focusing on crushing other Australian retailers (at least for the short to medium term) and I assume that this is exactly what they'll do if they jump into Australia (low-hanging fruit principle).
My final conclusion is that in my opinion, Amazon will not affect the operations of Woolworths for a long time, which gives Woolworths more time to react, and therefore think that the Woolworths share price is undervalued.
Happy to have other peoples opinions though (
@crazypunter ?)
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(20min delay)
