IT'S HAPPENING: Amazon is talking to around a quarter of Australia's grocery suppliers

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Amazon is in talks with almost 20 per cent of Australian food and grocery suppliers, confirming that the e-commerce giant is preparing to take on Coles and Woolworths in the $3 billion online grocery market.

According to a survey of suppliers by investment bank UBS, about 23 per cent of packaged food suppliers and 29 per cent of non-food grocery suppliers have been in contact with Amazon, which last month confirmed plans to roll out its full retail offering in the next few years.

About 96 per cent of suppliers believe the online behemoth will launch Amazon Pantry within three years, challenging Coles and Woolworths’ dominance of the online grocery market, which now accounts for about 3 per cent of the total market.

UBS analyst Ben Gilbert said no fresh food suppliers surveyed claimed to have been in contact with Amazon, suggesting that the e-tailer had no current plans to launch its fresh food delivery service, Amazon Fresh, in the foreseeable future.

The survey also showed that 51 per cent of suppliers expect German hypermarket Kaufland to enter Australia within the next three years. However, only 3 per cent of packaged food suppliers have been in contact with Kaufland, which revealed late last year it was investigating entering the Australian market.

No suppliers said they had been approached by Kaufland’s sister chain, Lidl, which claims it has no current plans to set up shop in Australian despite registering hundreds of trademarks over the last 20 years.

The new entrants will increase the level of competition for market leaders Coles and Woolworths, independent retailers supplied by Metcash and discounter Aldi, which has now accounts for about 10 per cent of the Australian market.

However, the new players promise to provide a lucrative new channel to market for food and grocery suppliers, who face ongoing pricing and ranging pressure from the major chains.

The supplier survey found that while manufacturers’ topline sales growth has accelerated in 2017, supplier margins continue to come under pressure from retailer price creep, range rationalisation, demands for higher trade spend and increased competition from private label products.

Mr Gilbert said the launch of Amazon Pantry heightened the risk of increased discounting by the major chains to defend their market share.

Investors fear grocery retailer earnings will fall 12 per cent and sales by an average 2.6 per cent within years of Amazon entering Australia, according to a separate survey of fund managers and brokers by UBS, with Metcash likely to be hit harder than Wesfarmers and Woolworths.

“We believe the threat of a new international entrant is a significant medium to longer term risk to industry growth and earnings,” Mr Gilbert said.

The UBS supplier survey will be presented at the Australian Food and Grocery Council’s annual conference in Brisbane this week.

More to come.

This article originally appeared on the Australian Financial Review. Read the original here, or follow the AFR on Facebook.

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