Amazon wants a slice of South Africa’s R70-billion market

South Africa’s e-commerce sector is growing by billions yearly, but logistical challenges and fierce global competition make it difficult for local companies to remain competitive.

Competition amongst online retailers has increased dramatically with the emergence of e-commerce giants like Amazon, Temu, and Shein in the South African market.

South Africa’s e-commerce sector is growing rapidly and reached a record R71 billion in sales value in 2023.

This is according to the Online Retail in South Africa 2024 report by World Wide Worx, which was compiled in partnership with Mastercard, Peach Payments and AskAfrica.

According to the report, the sector grew 29% from R55 billion in 2022 and now represents 6% of the total retail market, which generated R1.1 trillion in sales in 2023.

A RationalStat report estimated that South Africa’s e-commerce market is expected to reach $16.3 billion (R296.36 billion) by 2030, with an annual growth rate of 15%.

“The strategic shift towards competitive e-commerce offerings and enhanced customer engagement, including sophisticated AI tools, has fundamentally transformed the retail landscape in South Africa,” Arthur Godstuck, CEO of World Wide Worx, said.

This rapid e-commerce market growth is partly driven by Generation Z, born between 1997 and 2012, and their shopping habits.

A whopping 98% of this generation owns smartphones, and 32% shop online at least once daily, which is more than any other generation.

The digitally native generation is “reshaping the way we shop and revolutionising the expectations surrounding the delivery experience, spurring the need for efficient, seamless and tech-driven delivery solutions”, Africa Business said.

Heightened market activity is predicted to increase parcel volumes, particularly within the business-to-consumer space.

“Courier services are regarded as the backbone of e-commerce, facilitating the seamless flow of goods from sellers to buyers,” Africa Business explained.

“These services ensure the convenience promised by e-commerce platforms extends far beyond the digital transaction, to the physical delivery of products.”

“They directly impact customer satisfaction, repeat business, and the overall reputation of e-commerce platforms.”

As the e-commerce market continues to grow, it becomes increasingly important for courier services to leverage technology to remain competitive.

“By integrating systems, driving lean processes and leveraging our own economies of scale, we are able to enhance our efficiency,” Craig Pitchers, CEO of The Courier Guy, explained.

“However, it is essential to continue protecting the business and maintaining the high quality of service we deliver to our customers.”

The company has leveraged technology and innovation to remain competitive in the e-commerce space.

For example, the Courier Guy’s customer support team uses conversational bots, which allow customers to input basic information such as names and label number details before their call or chat is routed to an agent.

By integrating these bots into their customer service offering, the company has saved around R1.4 million annually.

Amazon and logistics

Industry growth is also being driven by global e-retailers like Shein, Temu and Amazon entering South Africa.

Given the fierce local and international competition already present, it was clear that Amazon South Africa, which launched in May, would need its logistics to set itself apart.

“There are many aspects to operating profitably in the e-commerce space, but logistics is the most important,” Andy Higgins, MD of e-commerce solutions company Bob Group, told the TechCentral Show.

Amazon, for example, offers a wide selection of local and international brands across 20 product categories, with same-day and next-day delivery options. Additionally, Amazon provides over 3,000 pickup points and an easy return system.

However, the company’s launch failed to meet the high expectations many people had.

One driver that Higgins believes fuelled hype around the Amazon South Africa launch was related to people’s experiences with other international digital businesses, such as Google and Netflix, which quickly dominated local markets.

“Those services are purely digital, whereas when we talk e-commerce – for the most part – there is a physical product involved, which adds much more complexity to the process,” he explained.

According to Higgins, Amazon’s biggest challenge in South Africa likely relates to the complexity of the logistics infrastructure.

Amazon competes with a sophisticated incumbent in Naspers-owned Takealot Group, which has deep knowledge of South Africa’s logistics landscape and owns a fulfilment network through Mr D.

In contrast, Amazon South Africa uses third parties for its logistics.

Logistical challenges also explain why the company launched without any Amazon-branded products, such as Echo smart speakers or Kindle e-readers.

Higgins explained that these products will come in time, but it may take longer than people expect.

“I think one of the challenges Amazon will have is having to fit into software and a system that has been built for other markets,” he said.

“It will be difficult to get customisations made to how the system works for South Africa, which makes up a fraction of their business. I can foresee challenges in getting that right.”

He said that while many aspects are related to operating profitably in the e-commerce space, logistics is the most important.

“In other markets, Amazon built its own logistics infrastructure, which could happen in South Africa. I think it’s a long way off, though,” he said.

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This article was first published by Daily Investor and is reproduced with permission.