Earlier this month, Amazon launched its South African market, marking the e-commerce giant’s entry into the African market after two years of planning. The move is expected to trigger a pricing war in the domestic e-commerce landscape, benefiting South African consumers with faster deliveries, more products and better support, a new analysis by Tech Safari, a popular newsletter focusing on Africa’s tech and startup ecosystem, says.
The blog post, written by Tech Safari writer Sheriff Alimi and founder Caleb Maru, discusses Amazon’s recent launch in South Africa and its implications for the e-commerce market in Africa. It highlights Amazon’s late entry into the African market, and speculates on the possible impact of the arrival on the continent’s e-commerce scene.
Amazon enters the South African market
On May 07, the American e-commerce giant announced the launch of Amazon.co.za, allowing South African users to shop from a selection of local and international brands across 20 different product categories, enjoy competitive prices, and tap same-day and next-day delivery. For products fulfilled by Amazon, customers benefit from free delivery on their first order, followed by free delivery for subsequent orders above ZAR 500 (about US$27). These benefits are restricted to Amazon Prime subscribers in the US and cost US$14.99 a month, but are free in South Africa.
Customers also receive status updates via WhatsApp, allowing them to track their order at every step of the way, and will benefit from hassle-free returns within 30 days via convenient options, including home pickup and self-drop, in addition to customer support via phone, email, and live chat.
Amazon.co.za features a wide range of products across categories such as consumer electronics, sporting equipment, toys, home, and small kitchen appliances, including international brands such as Apple, Sony, HP, Lega, Chicco, Maybelline, Pampers, Neutrogena, and Johnson’s. The store also includes popular local brands from independent South African sellers, including Amanda-Jayne, King Kong Leather, Masodi, and Tiger Lily.
Amazon entered Africa after two years of planning. Leaked documents obtained by Insider in June 2022 revealed that the firm initially planned to launch in Nigeria and South Africa by April 2023. It eventually postponed its launch in South Africa to 2024 after hiring African executives, setting up a fulfillment center, and partnering with local entities, and dropped its Nigerian plans, according to Tech Safari.
Amazon chose South Africa due to its status as one of the continent’s largest e-commerce markets and its significant growth potential. South Africa boasts 105 e-commerce platforms, 55 million online shoppers, and an e-commerce penetration rate of 37%, data from the Nanyang Technological University in Singapore show. SeerBit, a pan-African payment platform, expects the South African e-commerce market to exceed US$21 billion by 2025, with more than 1 billion transactions per year.
Africa’s e-commerce market
E-commerce is emerging as Africa’s next high-growth market owing to the continent’s large, relatively young, and tech-savvy population, increasing mobile internet penetration, a fast-growing middle-class and rising disposable income.
In 2017, e-commerce penetration in Africa stood at a mere 13% and 138.9 million users. By 2022, it had soared to 32% and 387.8 million users. By 2025, that number is expected to breach the half-a-billion user mark and reach a penetration rate of 40%. That represents a compounded annual growth rate of 17%, according to Nanyang Technological University in Singapore.
E-commerce penetration rates in Africa by 2025, Source: Nanyang Technological University in Singapore, Mar 2023
Africa’s 387.8 million e-commerce customers in 2022 are forecast to drive revenue to US$49.02 billion in 2023 and to US$82.49 billion in 2027.
Africa’s e-commerce revenue forecast, Source: Nanyang Technological University in Singapore, Mar 2023
E-commerce in Africa takes different shapes, from direct sales on company websites, and informal social commerce models, to micro businesses using social media to sell their products online, and e-commerce platforms facilitating business-to-business and business-to-consumer trade.
Platforms like Jumia and Konga from Nigeria, and Takealot from South Africa, have made significant strides by selling a variety of products, from fashion to technology items, largely to urban and more affluent consumers.
In South Africa, Takealot has become the market leader, averaging 10.5 million monthly visits in 2021, supported by US$231 million from Naspers and Tiger Global, data from Crunchbase show.
Africa e-commerce giants, Source: Statista, May 2022
Amazon’s entry poised to shake up e-commerce landscape
With the arrival of Amazon in South Africa, local e-commerce platforms like Takealot are under pressure. Accenture executives believe Amazon’s entry will push local players to refine their value propositions and enhance their customer experiences to stay relevant. They will also need to match Amazon’s fast shipping times, and improve logistics and supply chains.
According to Tech Safari, Amazon’s entry will set off a pricing war beneficial to South African consumers, with promises of cheaper products, faster deliveries, easier access to international brands, and better support. Takealot, already unprofitable despite heavy funding, may struggle against Amazon’s financial might, the analysis says.
In response to Amazon’s entry, Takealot launched a free delivery service with a monthly subscription on May 08. The company is also planning to expand its dark stores across South Africa to capture a larger share of the local online shopping market, increase its warehouse facilities across the country, and optimize its online shopping processes, Takealot Group CEO Frederik Zietsman told ITWeb in a recent interview.
Featured image credit: edited from Unsplash
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