Amazon vs. Takealot - who will dominate the South African ecommerce market?

Amazon has finally set foot in South Africa and fortune-telling has been rife. One such example is this mybroadband.co.za article.

Who will win? Takealot? Amazon? Or, will it be like one of those classic 'nonsense' spoof spaghetti Western Bud Spencer / Terrence Hill "Trinity" movies where they always end up fighting each other and neither of them ever wins?

A lot of pundits seem to think that Takealot will (at least) survive and that they may even win. A common justification for this stance seems to be that Takealot's knowledge of the South African environment gives them the advantage. ("Africa is not for Sissies" after all.) From this dailyinvestor.com article: "(Takelot has) unrivalled knowledge of the local eCommerce market, and strong relationships with local sellers and suppliers".

Is this true? Is local knowledge relevant? It certainly seems to have been the case for many South African companies that have ventured overseas and that have failed there because they may not have had the requisite knowledge of those foreign environments?

Truworths failed with Sportsgirl in Australia. Woolworths failed with David Jones in Australia too. Shoprite failed in Nigeria. Sasol failed at Lake Charles in the USA. This is a long list with many more names that we could have mentioned. Yes, some others, such as SA Breweries, did have offshore successes, but that list is much shorter.

Local Knowledge

Is it really as simple as 'local knowledge'? We don't think so.

Local knowledge is relatively easy to acquire. You simply buy it. Amazon certainly has the funds to do so. Lots of South Africans have been working for Amazon for years already, such as in the Amazon Development Centre in Cape Town. Some of Amazon's greatest successes (such as AWS) were initially developed by South Africans. And, many of Amazon's top roles for their new venture here have already been (and will still be) filled by South Africans. Money buys knowledge. Local knowledge only matters until you have bought it. Other factors matter more.

The Factors that Matter

Businesses succeed not primarily because of 'knowledge', but because of factors such as strategy, branding, differentiation, value-propositions, funding/buying power and innovation.

We don't have any deep insights into Takelot's strategy and their (not yet publicly manifested) innovations - if any such new innovations exist. So, there may be some surprises that may still pull a few rabbits out of some hats. Those will have to be very big rabbits though to compete with Amazon's constant stream of innovations.

We also don't know if there are perhaps other very big brothers that can help fund Takelot even further (although such brothers will have to be huge to out-fund or match-fund Amazon).

What we do know is that the Amazon brand dwarfs the Takealot brand globally and that their brand is also already mightily strong in South Africa.

So, we are left with differentiation and value proposition. And, well, how does Takealot now actually differ from Amazon in these two related respects? You can answer that question for yourself, but to us the value propositions look exactly the same. Both are the 'everything' store. Amazon perhaps has more access to more 'everything', but fundamentally there just does not seem to be enough differentiation.

Reasons for Failure

Why did the South African companies (mentioned earlier) fail overseas? In our estimation two factors mattered.

Firstly, it appears as if some of these SA companies did not do enough due diligence to truly understand and/or acquire enough local knowledge (or to buy it from the right sources).

There were also, in some cases, an unjustified arrogance (if one can call it that) of "we know how".

This is not Amazon's first overseas gig. By now they know how to acquire local knowledge. They have been through this process many times already. And, they would have learnt from Walmart's relative failure to succeed in SA through Massmart. Walmart's failure seems to have been as a result of similar levels of arrogance, and also as a result of Whitey Basson's brilliance in misleading them.

Importantly, and this has been the case with many South African companies in Africa, if one acquires local knowledge that tells you 'this is going to be so bloody hard to get right that there is a good chance of failure', then perhaps you should hang back. This is then not a case of prof. Christensen’s Principle #3 "markets that don't exist cannot be analysed". These markets could be analysed.

Secondly, some of the South African overseas failures were as a result of value propositions that just did not appeal to those overseas markets as much as it did to South Africans. That certainly is not a worry for Amazon here. South Africans have been buying from them for years already without them having had the presence that they have now.

Shoprite enters the Room

In the online musings following Amazon's South African entry, most of the discussions have been an Amazon vs. Takealot discussion; a King Kong vs King Kong discussion. But, next to these two King Kongs is a Godzilla that is only sometimes mentioned as an aside; the sixty-minute grocery-delivery aside, namely Sixty60.

Shoprite, though, is not a side-show in the online space. It truly is a Godzilla by now. Sixty60 is the most visible part of that e-body, but there are others such as Red Star Wholesale (previously called Checkers Food Services), Computicket, and more. Compare the size of that online empire to Takealot's. Don't compare it to 'puny little' Dash and ASAP. (Some of these figures - albeit often outdated - are available from independent suppliers such as 22Seven.)

But, more than mere size, the following matters. Shoprite's strategy differs hugely from that of Takealot and Amazon. There is a definite differentiation. That's why they are a Godzilla and not part of the King Kong family feud.

This differentiation provides Shoprite with many advantages (of which we will list four now):

1.) They can put many more entirely different value-propositions in front of customers.

2.) They have a very different set of suppliers and they have been working on how to successfully interact with those suppliers for many decades already.

3.) Their logistics model is quite unlike that of Takealot and/or Amazon. They, for example (and there are many more examples) have perfected the model of using hundreds of micro distribution centers, namely their stores and their dark stores, as opposed to a few large distribution centers.

4.) They have innovated (and truly/massively innovated, that is) at an astounding rate over the last few years.

Their only weaknesses seem to possibly be (1) the types of arrogance mentioned above and/or (2) reverting to the corporate mean.

This is likely to be a triangular fight. And, when that is the case, two's company and three's a crowd.

The Bottom Lines

Bottom line 1:

We simply cannot agree with statements such as "Amazon faces an uphill battle in South Africa" in that mybroadband.co.za article, and we state this with all due respect to people such as Andy Higgins who has had a stellar career of incredibly innovative achievements.

There are very good reasons why Business Degrees (up to MBA levels and beyond) focus on aspects such as strategy, value propositions and differentiation (and less, if at all, on matters such as 'local knowledge'). Focus on the right stuff!

Head-to-head competition between organisations where such differentiation is minimal, or does not exist at all, usually result in a fairly swift defeat of all except one of them.

The one with the largest amount of available money wins. They win unless they (a) get distracted into other bigger fights elsewhere / have bigger fish to fry elsewhere, or (b) they have hugely elevated levels of arrogance and/or disinterest.

And, we leave other actors such as Temu out of this discussion, for now, as there are still too many questions with unclear answers there.

Bottom line 2:

Conversely, where there is clearly more than one value proposition, there is a possibility that there will be room for "Intelligent" economic behaviour - i.e. behaviour that leads to the common economic 'good'.

We certainly hope that such "Intelligence" will be the case and that those who are left standing in a few months' time will have succeeded and will operate in such a manner that the economic future of this country is enhanced (and not diminished).

That is the much bigger and much more important question; the one that we really need to discuss and make work of.

Less popcorn. Less wishful thinking. Fewer magical just-so stories.