What Amazon in South Africa could mean for Takealot

The anticipated launch of Amazon’s online marketplace in South Africa early next year is good news for businesses that want to reach more customers, but online shoppers should not expect heavy competition with product prices early on.

That is according to Jaco Roux, co-founder, director and head of product at ecommerce software company uAfrica.com, and Claude Hanan, co-head of TFG Labs and co-founder of clothing etailer Superbalist.

MyBroadband learnt that Amazon was looking for warehouse space in South Africa in January 2022.

Although it was speculated that this could be for local ecommerce operations, Amazon’s imminent arrival in South Africa has been predicted for at least the past twelve years.

Then, last month, leaked documents acquired by Business Insider revealed Amazon was planning expansions into five new countries in early 2023.

According to the report, this included Amazon’s South African marketplace, which is expected to launch in February 2023.

Outside of China, Amazon.com is the leading online marketplace in the world, shipping an estimated 1.6 million packages per day, with an official presence in 58 countries.

The company’s enormous success rocketed its founder Jeff Bezos to the top of Bloomberg’s and Forbes’ lists of the world’s wealthiest people between 2017 and 2021.

Amazon’s involvement in South Africa has primarily been limited to its cloud business, with Amazon Web Services getting its start from a team in Cape Town.

It also operates a local call centre that employs South Africans to help customers overseas with order queries.

Although South Africans can order a selection of products from the platform, customers typically have to wait a week or more for their orders to ship from overseas.

This is expected to change with the addition of local warehouses, logistics, and an official South African site.

But Amazon will have to contend with Takealot, which has built a strong logistics network and garnered much consumer trust in South Africa.

As of 2019, the company was shipping an average of 35,000 orders per day, peaking at 80,000 during busy periods. That was before the boom in online shopping brought about by the Covid-19 pandemic.

Roux told MyBroadband that Amazon’s potential entry had stirred controversy in the ecommerce space due to its possible impact on small businesses and retailers that sell products online.

But he thinks Amazon’s local availability will be good for sellers, as competition for Takealot was necessary to give people options and convenience.

“Although Amazon is aggressive, there is no other company strong enough to take on Takealot in this environment — their execution is great,” Roux said.

Hanan said healthy competition between Amazon and Takealot could benefit smaller merchant sellers.

“It means more places for them to list their products, more and different customers, possibly improved fees, and hopefully improved service levels as a result of the more competitive landscape.”

Both Hanan and Roux believe it would take some time for Amazon to have a significant impact on Takealot, however.

“Takealot’s headstart will definitely play a role, for the simple reason that it is known, trusted and set up for many buyers and sellers already,” Roux said.

“Both companies have the financial resources to invest in a good fight, but it will definitely become a race.”

Hanan said the impact will initially be felt in the general merchandise and consumer electronics categories.

“If they are successful, the impact on competition will not be immediate, but it’s not hard to imagine Amazon having a R10-billion South African business within three to four years,” Hanan stated. 

Roux explained while many sellers would initially list on both platforms, that would change over time.

“The problem is, they will need to warehouse with both as well, which may cause some inventory issues with regards to stock allocation and cash flow,” Roux said.

He said the initial main area of contention would be which marketplace can offer the most products.

“This will not be a price war, but an inventory war — who has the best options for buyers?”

However, Hanan said pricing would “probably” play a role, depending on how aggressive Amazon plans to be.

“The Amazon playbook, per founder Jeff Bezos, has historically been ‘your margin is my opportunity,'” Hanan explained.

“If that remains part of their Africa strategy, then the pricing landscape will likely be impacted.”

Hanan said Takealot’s scaled logistics operation offered a competitive edge, but it was not the only important customer value proposition.

“For Amazon, it depends on how aggressively they invest in their customer proposition and how well they manage their third-party logistics courier providers in the near term,” he said.

According to Roux, one of the potential chinks in Takealot’s armour was the company’s apparent prioritisation of buyers over sellers.

“Takealot is currently extremely buyer-centric, and it is well-known that the processes for sellers on Takealot are expensive and rigid, which is a big barrier for selling on the platform,” Roux said.

“This opens up an immense opportunity for Amazon to be more competitive in their fulfilment and warehousing fees for sellers.”

“If they can improve the costs, onboarding processes and long-term relationship with sellers, then pricing will definitely start playing a role, and Takealot will need to relook at their processes for sellers in order to compete.”

Another benefit South Africans could get with a local Amazon ecommerce presence is the Amazon Prime membership.

In supported countries, the subscription service offers fast delivery turnaround times and exclusive discounts on products for a monthly fee.

Prime has proven immensely popular, having attracted 200 million subscribers by 2021.

While South Africans can subscribe to Prime and enjoy its video streaming service Prime Video and music streaming app Prime Music, they don’t have access to benefits like free or fast delivery.

A separate Prime Video subscription is also available in South Africa, which includes Twitch Prime.

Hanan and Roux expect Amazon to bring its full Prime membership offering to South Africa quickly.

“If you observe their launch strategies across other markets, they lead with Prime and the associated benefits of the programme,” said Hanan.

“This is consistent across developed and emerging markets. I see no reason why they would not do the same in South Africa.”

“Prime Video is already available for R79 a month. I would expect them to bundle the service with free delivery to enhance their value proposition. This would not be precedent,” Hanan stated. 

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