Amazon – A Threat to Canadian CPG Retailers?

  • Several weeks ago our newsletter carried a story about how Canadian Heritage has finally allowed Amazon to build its own warehouse / fulfillment centre in Canada. Due to what some would argue are protectionist strategies to support Canadian booksellers – Amazon orders are currently managed and fulfilled by a Canada Post warehouse.

    Up until this point Amazon was only a major threat to Book, Music and DVD retailers in Canada. This new fulfillment centre will give Amazon the flexibility to enter into new categories such as electronics and general merchandise and beyond.

    But could Amazon move into CPG categories such as dry grocery, home care and personal care?

    A story on Reuters is reporting that Amazon is now offering an on-line Grocery service in the UK to compete with Tesco, J. Sainsbury and others in this developed Grocery delivery market.

    Could Amazon do the same in Canada?

    On the pessimistic side, one could say that shipping cans of corn or boxes of laundry detergent through the mail makes it hard to make money. There is some truth to this however Amazon is likely one of Canada Post’s biggest customers and no doubt could negotiate some nice price breaks.

    On the optimistic side, many Canadians that live “North of 60” receive a large proportion of their groceries by “Food Mail” – the contract for which was recently awarded to the Northwest Company. Of course the costs are much higher than urban Canadians pay (and is backed by a federal subsidy).

    Not much is stopping Amazon from launching a service that focuses on urban markets by launching smaller fulfillment centres across Canada or partnering with an existing retailer like Sobeys to source direct from stores – the model used by many on-line grocery retailers including Toronto’s Grocery Gateway (in partnership with Longo’s).

    Amazon brings a powerful brand to everything it does. In fact, a report by Kantar Retail and Milward Brown has identified Amazon as the second most valuable retail brand in the world, trailing only mighty Wal-mart.

    That’s right. Amazon’s brand is worth more than Tesco, Carrefour, IKEA or Costco.

    Given their established brand identity and new found flexibility with their new fulfillment centre, Amazon’s move into the Canadian CPG scene may not happen tomorrow; but it may happen much sooner than we think it possibly could happen.

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