Why Amazon's Entry into South Africa Could Be Good News for Takealot
Amazon recently announced that it is launching its online marketplace in South Africa and unlike most — I think this is good news for Takealot!
Here's Why...
Firstly I understand why people think is really bad for Takealot because Amazon is a massive company.
Amazon's revenue is bigger than South Africa's GDP and its market cap is bigger than all the companies listed on the JSE Combined.
Based on those factors it is easy to conclude that Amazon will come in with all its firepower, crush Takealot and conquer the e-commerce business.
Here's the catch there isn't an e-commerce business to conquer because no one is making any money!
Here is how Africa's biggest E-Commerce companies have performed
Jumia - $227m loss FY22
Takealot - $22m loss FY22
Amazon Egypt (Souq) - loss-making*
Konga - loss-making *
*based on reports
E-Commerce has more losses than Ireland in Rugby World Cup Quarter Finals (🤭sorry to my Irish friends. I have been watching too much rugby).
Essentially, no one has figured out how to run an online marketplace profitably in Africa.
This is understandable. E-commerce has thrived most in markets where certain infrastructure already exists.
Accurate addresses, reliable post, roads, constant electricity etc.
Even Jeff Bezos, Amazon's founder, concedes that one of the reasons for Amazon's success is that he didn't have to build the delivery infrastructure from scratch.
Below is a direct quote from him.
Infrastructure issues can only be solved by investments and Amazon has loads of capital invest. Last financial year Amazon spent $38 billion (R700 billion) on investing activities.
These investments typically benefit the ecosystem as a whole and not only Amazon.
What you also find is that even in markets that Amazon dominates there is always space for two or three other players.
So I don't see a scenario where there is no space for Takealot and ironically Amazon also wouldn't want that.
Destroying local competition could generate bad press which wouldn't be worth it because the real prize for Amazon in Africa is not the online store but Amazon Web Services (AWS).
Amazon makes over 70% of its profits from AWS. It's their best business by far.
For AWS, Africa is a growth market.
In an article from Tech Cabal, they point out that demand for cloud computing services in Africa is growing at between 25% - 30% annually, more than double that of North America and Europe.
AWS wants to have a big piece of that.
This explains why Amazon has already committed to investing R30 Billion in South Africa for AWS. The fact that they can speak so publicly about the investment indicates they have a clear path to generating returns with AWS.
With the online store, it's not as clear.
So the real focus is AWS, but even if the online store makes progress it still can benefit Takealot.
If Amazon gains big market share it will likely be taking from Walmart-owned Massmart (Makro, Builders Warehouse, Game etc).
Walmart & Amazon are fierce competitors.
Perhaps this could push Walmart to bid for Takealot to battle Amazon or perhaps a joint venture with Naspers?
Whatever the case, these factors all work in favour of Takealot.
I first published this thread on 1 December 2023 and since then Takealots management team have made several press optimistic statements.
Most recently the Naspers SA CEO said Takealot was "well positioned" to deal with Amazon.
Don't miss the significance of this.
Usually, when a big multinational company enters a market the smaller local company complains.
Case in point DStv vs Netflix. DStv knew Netflix entering SA was bad for them and so they complained.
So why is Takealot not complaining and being so positive?
I think this is further proof that they see many of the indirect benefits that mean good news for Takealot.
For sure they will lose market share but as they mention Amazon entering also helps validate Takealot's business case for online shopping in SA.
Let's close with a story.
Imagine you are a guy who takes a girl you like and her twin sister for dinner. Midway through you realize you don`t have enough money to cover the bill.😫
By chance, your date spots an old friend and invites him to join you for dinner.🤔
He agrees to join and also to split the bill for the dinner.🥳
Now, this guy looks rich and is going to be serious competition for the girl you like.
But in the short term, the money he is bringing to the table is going to help you avoid a potentially fatal situation.🫡
So, is this other guy's arrival bad news?
After all, even if you lose out on the girl you like, you still have a chance with the twin sister🤭 which is still not a bad result.
Amazon is the guy joining the dinner but also splitting the bill.
I could be wrong or missing something in my analysis so if you disagree please let me know.
Opposing views are welcome!
There are many elements to consider and so I would love your feedback.
Leave a comment and let me know what you think.
If you found the earlier thread interesting you should check out the below!
Recommendation 1/2
https://twitter.com/tmukogo/status/1739549101950439918?s=20
Recommendation 2/2. Thanks!