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Media reports suggest that Amazon.com is set to launch a low-cost delivery service for pet food and other fast moving consumer goods during 2014. Will this send American consumers flocking to their computers and smartphones to buy pet food online – something they have up till now been rather reluctant to do?
Internet retailing has been relatively slow to take off in the US$21.4 billion American pet food market, accounting for a mere 1.2% of value sales in 2013, up from 0.6% in 2008. However, this was still much lower than in the likes of Japan (10.4%), the UK (7%), China (5.3%) and Spain (5.1%), in spite of the fact that 81% of Americans were internet users in 2012 (compared with 72% of consumers in Spain).
The main reasons behind the relatively low figure in the US are the fact that it has the best developed bricks-and-mortar retail infrastructure in the world (with just over half of value sales of pet food being accounted for by supermarkets and pet superstores) and an extremely high level of car ownership (88.8% of households had a passenger car in 2013).
However, this may be about to change. In mid-December 2013, a number of newspapers in the US reported that Seattle, Washington-based Amazon.com was working on a new business called Pantry that was targeting the FMCG market and was set to launch in 2014. Quoting unattributed Amazon.com sources, USA Today reported that “The service will be targeted at existing members of Amazon’s Prime shipping program [which provides two-day shipping on unlimited orders for a fixed annual fee of US$79]. It will launch with about 2,000 products… [including] canned goods like pet food”. It added, “Amazon will let Prime shoppers put as many of these items into a set sized box, up to a specific weight limit. If the products fit and they don’t exceed the maximum weight, Amazon will ship the box for a small fee”.
Like such FMCG categories as packaged food and home care, the relatively low weight-to-value ratio of pet food makes it relatively costly for internet retailers to ship to consumers. But this is less of an issue at the premium end of the market, and Amazon.com already has an extensive distribution footprint, reducing its costs and enabling it to deliver heavier or lower-value items than its rivals while still turning a profit.
With its proven logistical expertise, stellar brand equity and massive buying power, the entry of Amazon.com into pet food retailing is likely to have two main effects on that market. Firstly, it is likely to increase the importance of internet retailing in pet food and take market share away from incumbent bricks-and-mortar retailers, particularly in the all-important premium dog and cat food segment. This will not happen overnight, but the current yawning gap between pet food internet retailing (in terms of market share) between the US and the likes of the UK is likely to narrow over the coming years.
Secondly, it is likely to put the squeeze on pure pet food internet retailing players like New York City-based PetFlow.com, which was launched in 2010 and now claims to be shipping a million pounds (454,000 kg) of pet food a month. Such niche players will obviously struggle to match Amazon.com on price and could find themselves squeezed out of the marketplace.